The question that’s caught the attention of everyone: Will the Bank of Canada lower interest rates this year? Since early 2022, the Bank has increased the benchmark interest rate by almost 500 basis points in an effort to control inflation within the Canadian economy. As the economy adjusts, the possibility of further interest rate changes is a topic of interest that extends beyond the financial realm.

Bank’s Recent Actions

In July, the central bank decided to raise interest rates by a quarter-point after a brief pause earlier in the spring. Initially, there were expectations that the Bank might halt its tightening cycle and potentially reduce interest rates due to slowing inflation metrics. However, the Governing Council cited robust consumption, tight labor markets, and escalating energy prices as reasons for the renewed interest rate hike.

This shift in interest rates has made its impact on the Canadian real estate market as well. As per Statistics Canada, the average five-year mortgage lending rate from the Canada Mortgage and Housing Corporation increased to 5.99 percent in July, the highest recorded since December 2008.

Prospects for the Future

Are Canadians likely to face another interest rate increase within the year? The outlook suggests so, with economists cautioning that the success in taming inflation might be short-lived. In July, the consumer price index (CPI) experienced a rise of 3.3 percent on a yearly basis, up from 2.8 percent in June. Even the core inflation, which excludes volatile energy and food components, saw a month-over-month increase of 0.6 percent. Furthermore, the core CPI remained steady at 3.2 percent on a yearly basis.

Experts in the market are also anticipating another surge in consumer prices in August due to the upward trajectory of energy costs, which have far-reaching implications across the economy.

Since late June, crude oil and natural gas prices have been steadily increasing due to concerns over tightening supply. Forecasts indicate that global oil markets might experience a supply deficit in the latter half of the year, potentially pushing West Texas Intermediate (WTI) and Brent prices to around $90 per barrel.

As a result, the futures market is projecting a 25-basis-point interest rate hike during the September policy meeting. Naturally, much more data, including factors like gross domestic product (GDP), retail sales, producer prices, and housing prices, will surface leading up to the eagerly awaited meeting. Consequently, a multitude of variables could influence the course of action.

Conclusion

The possibility of interest rate adjustments by the Bank of Canada continues to captivate market observers and the general public alike. With a keen eye on inflation indicators and economic trends, the nation eagerly anticipates the next steps in the ongoing effort to maintain economic stability and control inflation.”