Bank of Canada interest rate cuts will take time to boost economy

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Bank of Canada interest rates are on their way down, but don’t get your hopes up about an economic rebound anytime soon.

In its latest outlook for the provinces, Fédération des caisses Desjardins du Québec predicts things will get worse before they get better.

“We remain convinced that growth will soften in most provinces during the quarters ahead, and a fuller rebound will only come closer to 2025 once more cuts have been made,” said economists Marc Desormeaux and Hélène Begin.

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Changes to interest rates, whether they be cuts or hikes, normally take between 18 months to two years to work their way through the economy.

The Bank of Canada has now cut 50 basis points, and is expected to cut at the next four meetings, bringing the benchmark interest rate to 3.5 per cent by January.

“Although expectations of additional interest rate reductions underpin our forecast of stronger economic growth in 2025, the recovery is still in its early days,” said the economists.

Desjardins’ forecast has the nation’s growth in real gross domestic product hitting bottom at 1 per cent by the end of 2024.

It will be even lower for the provinces most sensitive to interest rates.

The economists predict British Columbia’s real GDP will finish 2024 at 0.6 per cent and Ontario at 0.9 per cent.

Even with the rate decline, many homeowners will see their mortgage payments go up when they renew and savings rates in these two provinces are already climbing as residents brace for “future rate shocks.”

The oil-producing provinces are expected to fare much better, with Newfoundland and Labrador leading the pack. Desjardins sees growth in the eastern province topping the charts at 2.2 per cent, ahead of Alberta’s 2 per cent gain.

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Meanwhile, fears that the Canadian dollar would take a beating when the Bank of Canada cut rates ahead of the United States Federal Reserve have not amounted to much.

“For the most part, the Canadian dollar has weathered the storm, really more of a shower than a hurricane, that was created by easing ahead of the Fed, said CIBC Capital Markets.

CIBC foresees one more bout of loonie weakness if, as it expects, the Fed cuts only 25 basis points at its September meeting — less than the market predicts — while the Bank of Canada delivers its third cut.

It forecasts the Canadian dollar will sink to 71.9 US cents in the third quarter of 2024, before rising to 74 US cents by the end of 2025. The loonie was trading at 72.74 this morning.

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Investors dumped stocks at the sharpest pace since the onset of the pandemic during last week’s market turbulence. To shed some light on volatility, BMO Capital Markets looked at 10 market dislocations in the past and found that triggers ranged from tech crashes (1987, 2010), outside economic forces (1998, 2015), a pandemic and recessions (1990, 2008).

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“The broad takeaway is that recessions have almost always been led by a major market dislocation; but a major market dislocation doesn’t necessarily imply an imminent recession,” said BMO senior economist Robert Kavcic. “That said, there are reasons to not entirely disregard the risk at this point…”

• Google hardware event in Mountain View, California
• Ontario Finance Minister Peter Bethlenfalvy will release the province’s first-quarter finances
• Today’s Data: United States producer price index, NFIB Small Business Optimism
• Earnings: HudBay Minerals Inc, Orla Mining Ltd., CAE Inc., Cargojet Inc., Element Fleet Management Corp., Franco-Nevada Corp., Algoma Steel Group Inc., Home Depot Inc.

We’ve been hearing some pretty scary predictions about the pending wave of mortgage renewals coming due over the next few years, but MortgageLogic.news analyst Robert McLister figures it is high time to dial down the drama. He has six reasons why the mortgage renewal “wall” will probably be a knee-high picket fence — at least for most people. Find out more

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Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line with your contact info and the gist of your problem and we’ll try to find some experts to help you out, while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers, led by Julie Cazzin, can give it a shot.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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