Central bank predicted to cut interest rates in December

A UK-based research firm predicts that the Bank of Canada (BoC) will cut its key interest rate in December as housing market declines and oil sector headwinds drag GDP growth back below potential in the second half of the year.

Capital Economics expects BoC to continue reiterating that further rate hikes are needed, even if the case for pressing ahead becomes tough to support, according to a Yahoo Finance report.

“While the Fed dropped any suggestion of further rate hikes from its policy statement in January, there’s little to suggest that the Bank of Canada will follow suit next week,” Stephen Brown, the consultancy’s senior Canada economist, said in a research note. “The qualifier that the bank added in its last policy statement, that further rate hikes would be needed ‘over time,’ provides a fair amount of ambiguity over when the bank might actually raise rates again.”

Brown said this despite recognizing that recent speeches by Senior Deputy Governor Carolyn Wilkins and Deputy Governor Timothy Lane did not mention the prospect of further rate hikes.

“It’s not hard to see why officials are concerned,” Brown said. “The available data suggest that GDP fell for the second month running in December by 0.1%. Worse still, that weakness appears to have been broad-based.”

Brown pointed to declining housing starts and home sales, plunging oil and gas rig activity driven by lower commodity prices, and the largest monthly fall in manufacturing GDP in two years. The only positives, according to him, appear to be rising retail and wholesale GDP.

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