CIBC sees interest rate cuts in the near future

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Ontario Construction News

The CIBC is forecasting a 1.25 per cent central bank interest rate cut this year, with the initial 25 basis point drop in June amid slow to negative growth in the first two quarters.

The CIBC in it latest provincial economic outlook reflects the view of most bank economist in projecting 2024 GDP growth of less than 1 per cent and one or two quarters of negative growth in the first half, with activity to improve in the second half as interest rates start to come down.

CIBC’s forecast came before Statistics Canada on Tuesday said the country’s annual inflation rate slowed to 2.9 per cent in January on lower year-over-year prices for gasoline and food. Analysts had expected inflation to dip to 3.3 per cent from 3.4 per cent in December.

The CIBC sees 0.3 per cent growth in Ontario this year while the province in its fiscal outlook in November said Ontario’s real GDP was expected to rise 1.1 per cent in 2023, 0.5 per cent in 2024, 2.0 per cent in 2025 and 2.8 per cent in 2026.

“This year will be a story of slowing growth across the country,” said the report’s author, CIBC director, economics Katherine Judge.

“Debt-burdened households in Ontario and B.C., where a large share of activity is tied to the housing market, will see the slowest growth, along with Quebec,” Judge wrote, though CIBC’s provincial GDP forecasts have most economies avoiding an outright recession.

THE CIBC report sees the housing market and related spending rebounding towards the end of 2024 as demand recovers with interest rate cuts, but 2025 will bring a new set of challenges, “with the introduction of international study permit caps impacting B.C. and Ontario the most.” While CIBC says the cap will ease the housing shortage and contain rent inflation, it may also cut into aggregate demand growth.

In B.C. and Ontario, the report says the percentage of mortgages in arrears is roughly in line with 2019 peaks, but the mortgage market is being protected to a degree by the safety cushion built into regulatory changes that were introduced over the last decade.

The market rate forecast had been for the Bank of Canada to hold the key overnight rate at 5 per cent in the March rate setting, then cut by 0.25 per cent on April 10 with a full 1 per cent of cuts in 2024.

TD in late December forecast a 2.25 per cent cut by 2025. The Bank of Canada in early December held its policy rate at five per cent, keeping the benchmark the same for the fourth rate setting in a row. Mortgage rates were expected to gravitate lower over the long term, to a historical trend in the mid-high 3 per cent range.

But a stronger-than-expected jobs report in February has led to a revision of views on when the central bank will start cutting, from April to June, with expectations for a 1.25 per cent drop through the year from the previous forecast for a 1.75 per cent cut.


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