The Bank of Canada will announce its interest rate decision this morning as economists widely expect the central bank to opt for a quarter percentage point rate hike. The Bank of Canada is shown in Ottawa on Tuesday, July 12, 2022. THE CANADIAN PRESS/Sean Kilpatrick
"I think it's very likely the Bank of Canada cuts rates again next week. It wouldn't really make sense from a strategic point of view to only cut rates 25 basis points and then leave them there and see how the economy responds, because that wouldn't really cause a lot of change in the trajectory of the economy or inflation," said Royce Mendes, managing director and head of macro strategy at Desjardins.
In addition to the latest inflation report, Mendes said, recent data showing rising unemployment as well as subdued expectations for growth by Canadian businesses all support the prospect of another cut. "I would say if didn't cut next week, it would signal a much greater willingness to tip the economy into recession, just for the sake of getting inflation down a few tenths of a percentage point more."
The June result was the highest reading for the unemployment rate since January 2022, another indication that raises the odds of the Bank of Canada lowering rates this week. "Considering how cautious the bank is, reducing the overnight rate when inflation is still well over two per cent would be fairly uncharacteristic," Jarvis said in a note.
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