As the Canadian economy has experienced a hotter start to the year than anticipated, TD Economics said it now does not expect interest rate cuts until at least the second quarter of next year.
Higher levels of economic growth and rapid inflation around the world are pushing interest rates above expectations from the previous quarter, TD Economics said in its, released Thursday. The report said elevated levels of inflation following the height of the pandemic are “proving harder to tame.”
“We have pushed back the timing for interest rate cuts until the second quarter of next year, but even this could prove optimistic if core inflation metrics fail to offer convincing evidence of decelerating back to the BoC’s [Bank of Canada] two per cent target,” the report said. The report said it is not currently clear what will happen with the economy, given the present risk of a downturn and data that is yet to indicate a recession is occurring. As a result, central banks are attempting to find the “magic number on the policy rate” that will quell inflation.
The Canadian economy had the strongest growth among all G7 countries during the first quarter of 2023, the report said. A 3.1 per cent gain in real gross domestic product coupled with hotter-than-expected inflation figures in April encouraged the central bank to bring the overnight rate to 4.75 per cent in June, according to TD Economics.
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