Is it time for aggressive rate cuts?

  3/19/2024 |   SHARE
Posted in Canadian Economy and Interest Rates by Marti Philp| Back to Main Blog Page

Market Observers

One expert is urging the Bank of Canada to move “aggressively” on rate cuts.

Ed Devlin, founder of Devlin Capital and a senior fellow at the CD Howe Institute, called on the central bank to commence with rate cuts due to the Canadian economy showing signs of weakness.

“Given the weakness in our economy, I hope they’re not tepid,” he said in an interview with the Financial Post.

Devlin did acknowledge that the BoC’s future actions will depend on changes to inflation data, adding that the bank is likely waiting for inflation to decrease by an additional 50 to 100 basis points before implementing aggressive rate cuts.

“Inflation should come down, but it’s very tricky at this point,” Devlin explained, citing worries over the possibility of stagflation, where inflation remains high amid a slowing economy.

Still, he said that rate cuts of around 100 to 150 basis points “seems about right.”

“The market's pricing 85 the last time I checked,” he told the Financial Post. “I think we could see 150. It wouldn't shock me if we see 200.”

When asked about his broader economic outlook, Devlin said the probability of a soft landing is “now up from 10% to maybe 25%, or something like that.”

Meanwhile, the probability of a recession is “over 50% baseline.”

“That’s why I really would like the Bank of Canada to start acting decisively, moving in 50 and potentially more basis points at a time,” Delvin said.

“Uncontrolled immigration” can disrupt housing market

As for the impact of monetary policy on Canada’s housing market, Delvin noted how prices are “coming down a bit” due to higher interest rates.

He also pointed the challenges posed by “the type of uncontrolled immigration” that was almost seen in the country in the past year or so.

Devlin said that “Canada has great prospects and should allow a lot of skilled immigration,” but added that the unprecedented wave of recent newcomers “can be quite disruptive.”

To address the national housing shortage, Devlin said the federal government could do more to help provinces “get more supply.”

“We've had this really strange immigration issue up here, in terms of a lot of immigration coming down,” he said. “So, we have an issue of supply. At the same time, we have an affordability issue.”

Source: Canadian Mortgage Professional

Mortgage Consumers, Mortgage Debt, Mortgage Rate Forecast, Mortgage Rates Canada, Variable Rate Mortgages

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