CIBC First Big Bank to Expect Interest Rate Cut
June 13, 2019
CIBC First Big Bank to Expect Interest Rate Cut – CIBC expects that the Bank of Canada will trim its benchmark interest rate to 1.5% in the second quarter of 2020.
All but one of Canada’s other major banks project the Bank of Canada will hold its key overnight rate at 1.75% through the end of 2020. TD Bank expects the Bank of Canada to do absolutely nothing until the recent lag in economic growth fades and growth perks up.
National Bank of Canada is the only bank to suggest an increase. The bank forecasts two increases, each of one-quarter of a percentage point and in the second half of next year.
Here is how CIBC predicts we will see an interest rate cut. It is projected that the U.S. Central bank will cut its 2.5% target for the Federal funds rate twice, each by one-quarter of a point, once in late 2019 and again in early 2020. Although the Bank of Canada isn’t tied to Federal policy, soft global growth means there’s even less reason to believe exports and associated business investment will be able to make up for slowdowns in other parts of the economy.
The central bank is grappling with “conflicting” economic signals. The labour market has been strong in recent months, with job and wage growth, but companies remain reluctant to invest.
Rising global trade tensions and its long term implications have also garnered the attention of the central bank.
The removal of U.S. duties on Canadian steel and aluminium is good news for Canada, and it should improve the chances that the renegotiated North American free-trade agreement will get ratified.
Drawing added attention to the central bank is the escalation in the U.S.-China trade dispute, the potential for more friction between the United States and Europe and Chinese restrictions on some farm exports.
Interest rate cuts by emerging market central banks outstripped rate hikes for a fourth straight month in May, taking their cue from the major central banks as fears over the health of the global economy and trade tensions take their toll.
The Bank of Canada has been closely monitoring the rates on long-term and short-term bonds. A rare reversal of short-term and long-term interest rates may point to darker days ahead for the global economy. Typically, rates on longer-term bonds are typically higher than on short-term ones because of the greater risk for lenders of not getting paid over a longer time period.
This reversal along with global interest rate cuts have given the Bank of Canada alot to think about.
These reasons would be enough for the Bank of Canada to adjust the interest rate by one-quarter of a percentage point.
Other economists have also sided with CIBC indicating that an interest rate cut will happen in the future. One economist believes that the rate cut will occur before the end of 2019.
A lower than expected outcome for the economy was not in the Bank of Canada’s original forecast. In fact, the bank indicated that the Canadian economy will grow 1.2% this year (which would be the slowest pace since 2016) and 2.1% next year.
Lowering the interest rate by one-quarter of a percentage point doesn’t seem like a lot, but as many Canadians juggle with swollen debt, they would accept a lower interest rate whenever they could get it.
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