"That means two more (rate cuts) this year then it will be another couple next year," according to Ambler, a retired Universite du Quebec a Montreal professor and a member of CD Howe's shadow monetary council. "I find it hard to imagine that they will go quickly much below 3.25%."
Lowering rates another percentage point would bring borrowing costs to about Ambler's estimate of neutral and ensure monetary policy doesn't become even more restrictive as inflation slows. The Bank has said only that after some bumps inflation will settle at target sometime in 2025, an imprecision Ambler said is justified by the risk of more geopolitcal shocks and how much Canada's economy may
slow.
HOT AND COLD DANGERS
Officials have discussed scenarios where they could move slower and also going by 50bps if needed, Macklem told reporters after Wednesday's decision, adding there was a clear consensus to cut by a quarter point again this time. The Bank pointed to a risk the economy will come in slower than projected over the second half of the year, and the threat of upward pressure on costs of shelter and other services even as many other products return to normal pricing.
There's still some danger the housing market flares up again, Ambler suggested. That happened last year when investors saw signs the Bank was pivoting away from rate hikes. "If they keep on going and then the dangers flip right around again, they might encourage the real estate markets, other markets, to overheat," Ambler said.
Governing Council is more broadly concerned about their credibility after the tough fight to wrestle down inflation, Ambler said. "If inflation were to tick back up on that kind of thing, I think they would pause, and we would be looking more towards at least the middle of 2025 before inflation gets back to target and we get to somewhere that might be called the neutral rate." (See:
MNI INTERVIEW: BOC Cuts Will Be More Hesitant- WLU Researcher)
Inflation excluding mortgage costs has been well behaved so far this year, Ambler said, and he agrees with another indication from the Bank that prices are normalizing.
Macklem in response to a press conference question from MNI didn't specify what kind of inflation undershoot would draw a policy response, but Ambler said it's a live issue. "If we're hitting 2%, I would suspect there's going to be a couple of months where it does go below two," he said. "If we see three months below 2% and then it gets down below 1.7% then I think the Bank is going to start being worried."
