Economists Royce Mendes and Tiago Figueiredo from Desjardins Group suggested today that the Bank of Canada could begin reducing interest rates in the second quarter of 2024, provided unemployment reaches about 6.5% and inflation stabilizes at or below 3%. This insight comes as October’s inflation rate dipped to 3.1%, attributed in part to falling gasoline prices, as revealed by Statistics Canada on Tuesday.
The central bank’s policy rate is currently at a 20-year peak of 5%, with the housing market’s supply challenges being a significant factor in overall inflation. Despite the Bank of Canada’s standard target for inflation being 2%, these housing issues could prompt an earlier rate adjustment. The Desjardins forecast sees inflation continuing its downward trajectory, aligning with the central bank’s target around 2025.
A critical measure influencing future rate movements is the vacancy-to-unemployed ratio. This indicator has slightly exceeded its pre-pandemic level of 0.5 and is anticipated to decline further as job vacancies drop and unemployment rates increase. Given these economic signals, including persistent housing supply problems, the Bank of Canada might not wait for a complete return to its conventional inflation target before loosening its monetary policy stance.
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