Economist: The Bank of Canada will cut interest rates by a series of 25 basis points

The Zhitong Finance App learned that as inflation approaches normal levels, economists have drawn up a clear roadmap for the Bank of Canada's future policies — it is expected that from now until next year, there will be a series of 25 basis point interest rate cuts. According to the latest survey, the Bank of Canada is unlikely to choose to cut interest rates drastically when reducing borrowing costs. In fact, none of the 18 analysts surveyed believed that the central bank would cut policy interest rates by 50 basis points or more at any meeting.

Most economists predict that in the next five meetings, including next Wednesday's decision meeting, the Bank of Canada will cut interest rates by 25 basis points each until the benchmark overnight interest rate drops to 3.25%. The Bank of Canada is expected to suspend interest rate cuts in April next year. The Bank of Canada has cut the policy interest rate twice before, from 5% to the current 4.5%. According to the survey, forecasters are optimistic about the gradual normalization of monetary policy and believe that this is consistent with the soft landing of the Canadian economy.

More than two-thirds of economists expect Canada's annual inflation rate to return to the 2% target set by the Bank of Canada by the second quarter to the fourth quarter of 2025. Only 38% of people think that the net number of unemployed people in a single month will exceed 30,000 in the next six months.

Economists don't think interest rates will fall close to pre-COVID levels. The median forecast shows that the Bank of Canada will stop cutting interest rates when overnight interest rates fall to 3%. More than half of economists expect the central bank to start raising interest rates again in the second half of 2026.

Of course, there are also forecasters who believe that the economy is weak, and interest rates may be cut more drastically than normal. Citigroup economists recently said in a report to investors that they expect a 50 basis point interest rate cut in October this year, but the bank did not participate in this month's Bloomberg survey.

Nearly three-quarters of respondents said that policymakers will continue to reduce the central bank's balance sheet until the first half of 2025, which is in line with the central bank's own estimate of when the quantitative austerity will end.

The survey of 18 economists was conducted between August 23 and 28. On Friday morning, Statistics Canada reported that in the second quarter, Canada's GDP grew at an annual rate of 2.1%, higher than forecasters' median expectations of 1.8%.