2023-11-24 00:30:00
At a time when the head of the Bank of Canada believes that interest rates have increased enough, some economists even see a drop of up to 3% within 18 months.
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Tightening monetary policy is working, according to Bank of Canada Governor Tiff Macklem. He acknowledged during a speech Wednesday in Saint John that interest rates could already be high enough to bring inflation back to its target.
“We expect the economy to remain weak over the coming quarters, which means further downward pressure on inflation is in the works,” he explained. The excess demand in the economy that made it too easy for prices to rise is now gone,” added Tiff Macklem.
However, he reiterated that the central bank could raise rates further if inflation did not fall further.
Mortgage threat
“This tightening of monetary policy is working, and interest rates could now be restrictive enough to return us to price stability. But if high inflation persists, we are prepared to increase our policy rate further,” Tiff Macklem said.
Due to the economic slowdown and the risk posed by the renewal of mortgages, the central bank chose to maintain its key interest rate at 5% in its last two decisions.
Remember that in the country, 60% of mortgage loans should be renewed over the next three years, for a value of $400 billion. In many cases, the renewal will be at a much higher interest rate than previously negotiated, which will cause mortgage payments to jump.
Towards a rate cut?
Some economists believe that the Bank of Canada will even have to reduce its interest rates, and more quickly than the market anticipates. This is the case of David Rosenberg, who affirms that the Bank will have to reduce its key rate by two percentage points over the next 12 to 18 months, bringing it down to 3%.
“It’s going to happen faster than most people think,” Rosenberg told Bloomberg in a telephone interview. “The economy is going to experience a serious recession. It’s going to be late and they’re going to have to scramble,” said the founder of Rosenberg Research, known in particular for predicting the real estate crash in the United States in 2008.
Economists surveyed by Bloomberg last month believe the rate cuts will proceed a little more slowly than Rosenberg predicts. The general opinion is that they will start in the second quarter of next year.
–In collaboration with the QMI Agency
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