On December 11, the BOC will make its final rate announcement for 2024, and most economists are expecting another cut. The question we are all wondering is: by how much?
Why We can Expect Another Cut:
With much anticipation and only a few days away, there are many economists in recent news stating that with the poor unemployment rate, state of inflation, and economy, alongside recent trending cuts, we are anticipating another 25 basis point drop, bringing it down from its current rate of 3.75% to 3.50%.
Supporting the prediction of a 25 basis point cut is the latest Statistics Canada inflation report, which showed inflation reaccelerated to 2.0% in October, up from 1.6% in September. This reading was slightly higher than most market participants expected, implying that the BoC’s goal of stabilizing inflation will not be a smooth one.
The rise in unemployment shows that the labor force is growing, with more Canadians looking for work than there are jobs available. While it’s good that jobs are being created, it’s just not happening fast enough to keep up with population growth and the demands of the job market.
The numbers highlight worries about a slowing economy and could play a role in the BOC’s upcoming decision on interest rates. A higher unemployment rate often signals that the economy isn’t running at full strength, which might push the central bank to lower rates to give it a boost. With inflation staying near the Bank’s target, the unexpected rise in unemployment strengthens the case for a rate cut. Lower rates could encourage more consumer spending and business investment, giving the economy a much-needed lift.
As much as we can anticipate a guaranteed 25 basis point drop, there are others such as the Royal Bank of Canada (RBC) who believe that with Canada’s sluggish economy, highlighted by the latest GDP figures, could push the BOC to make a bold move with a 50 basis point rate cut before the year ends. The GDP data revealed slower-than-expected growth, pointing to ongoing issues like weaker consumer spending, low business investment, and falling exports.
RBC thinks this economic slowdown, along with rising unemployment and inflation staying close to the Bank’s target, gives the central bank room for a larger rate cut to kickstart growth. A 50 basis point cut would be a significant step, making borrowing cheaper, boosting spending, and addressing the clear gaps in the economy. It would also show the Bank’s focus on steering the economy back on track as we head into 2025.
Conclusion:
If the BOC cuts the interest rate to 3.50% for the new year, we will see a massive increase of buyer interest as borrowing gets cheaper, which in turn will drive up demand where there’s already a limited supply. With more competition, prices will be expected to rise from the price corrections we have seen in the last quarter of 2024 in all areas of the market. With the lower rates, not only home buyers but also more investors can be attracted, adding even more activity to the market. Overall, the rate cut will make next year’s market busier, pushing prices higher, and tighten housing availability even further.
