Panel of economists and other money experts believe that the low interest environment will be with us for at least another year
If you’re missing the periodic excitement of the Bank of Canada’s interest rate decision day, don’t expect things to change any time soon.
With the latest announcement due next week (Sept. 9th), there are few expecting any changes to the rate either this month, this year, or in fact, next year.
A panel of experts convened by the financial comparison site Finder.com was unanimous that governor Tiff Macklem will hold rates at 0.25% next week.
The longer term outlook also calls for a freeze with all but one of the 20-strong panel expecting that rates will not change for at least one year. Three quarters of them think it could be 2022 or even 2023 before the BoC will change interest rates.
Tony Stillo, Director of Canada Economics at Oxford Economics, goes further in believing the rate will hold beyond 2023.
With weaker inflation – it only increased by 0.1% in July – there is speculation that Canada’s central bank could use negative interest rates. But the panel has some differing views on this.
“The BoC has ruled out negative rates and narrowed its QE focus to buying Federal government bonds for an extended period. This will continue to provide ongoing stimulus absent further moves,” said Derek Holt, VP and head of Capital Markets Economics at Scotiabank explains.
But Moshe Lander, Economics Professor at Concordia University, said: “The Bank of Canada will need to pursue aggressively any and all policies to stave off deflation and to give a boost to demand to keep the economy from seizing up if and when the second wave comes in the autumn.”
And Angelo Melino, professor at University of Toronto, added: “I don’t expect negative interest rates, but as the economy starts to improve in 2021 I expect the Bank will return to forward guidance to keep the yield curve from steepening too quickly.”
The panel was also asked about the planned transition from the Canada Emergency Response Benefit (CERB) to a more targeted set of benefits, only half of them said it would be sufficient for those facing hardship resulting from the pandemic.
Sebastien Lavoie, chief economist at Laurentian Bank, felt that continued government support was “a small price to pay in the grander scheme of things” but Avery Shenfeld, managing director and chief economist at CIBC Capital Markets, said that “while base benefits are a bit lower than they were under CERB, there are more opportunities to earn labour income while retaining these benefits.”
The panel believes that the changes in working lives will have an impact on both commercial and residential real estate markets.
For the commercial sector, 94% of respondents believe it is at least somewhat likely that offices and retail property will be adversely affected in terms of vacancy, new supply, or rents.
“Office vacancy rates in most markets across Canada were expected to increase prior to COVID-19 as a result of new supply, and are now likely to increase more as a result of increased sublet space in the short term but also due to bankruptcies in the medium term and non-renewals or downsizing in the long term if work from home remains in place,” said Roelof Van Dijk, director of Market Analytics & Market Economist at CoStar Group.
The full report is available at: https://www.finder.com/ca/bank-of-canada-interest-rate-forecast.