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MNI INTERVIEW: No BOC Rate Cuts Until Later In 2024-Conf Board

Source: Bank of Canada

The Bank of Canada will likely refrain from raising interest rates further but will also remain cautious about reducing them until at least later next year amid stubborn pockets of inflation and a possible soft landing, Conference Board of Canada chief and former BOC economist Pedro Antunes told MNI.

“The Bank is really at least suggesting that it’s going to pause,” Antunes said in an interview. “Continued progress on inflation is crucial, and I think that will allow the Bank to bring down rates slowly,” he said.

Some investors are betting the Bank will cut in the second quarter of 2024. But Antunes says he doesn't see the BOC embarking on rate cuts until late next year, despite recent progress on inflation.

“The Bank is trying to catch up here to very high inflation and inflationary pressure,” especially after the “misalignment” with loose fiscal policy through the pandemic rebound, he said. (See: MNI INTERVIEW: Spending Remains Too Hot For BOC-Ex Govt Adviser)

The bank's decision to hold rates steady Wednesday left the door open to another hike if strength in wages and consumer spending persists, said Antunes. Officials are also debating how much of the drag from 10 past rate hikes has yet to be felt.

Inflation peaked at 8.1% in June of last year and was 3.1% in October, though core rates are a bit higher. Global inflation could also be important to the BOC's outlook as conflicts fray trade and elevate oil prices while U.S. budget deficits crowd out investment, Antunes said. The Bank has a single mandate to target 2% consumer price gains.


BOC policymakers don’t want to surprise markets and the phrase from this week's decision about the economy no longer being in excess demand is an important signal, he said.

“We may see more suggestions that interest rates have peaked and after that we may start to see suggestions that interest rates will come down,” Antunes said.

Wage gains are perhaps the most troubling inflation risk and at about 5% he agrees with Bank officials that such pay raises aren't compatible with price stability. “The Bank is going to be very prudent about that remaining inflation, that core inflation, that wage inflation. I think wages are going to be slow to come down to that more sustainable pace.”


After some outsized interest-rate hikes to curb inflation last year, Antunes said some larger reductions in a range of 50-75 basis points may be justified once the downward cycle begins.

“We may see a similar path on the way down,” especially if the economy buckles, he said. “There is a risk that this soft landing becomes a little harder than we might want.”

Antunes agrees with BOC officials who have stated interest rates will not return to the lows seen following the 2008 financial crisis. He believes rates are poised to settle a bit above the Bank's estimate of a 2.5% neutral rate. (See: MNI INTERVIEW: BOC To Delay Rate Cuts And Move Slow- Alexander)

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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