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Jan 24 - 12:55 PM

CIBC: BoC Policy Decision Hints at Future Rate Cuts

By eFXdata  —  Jan 24 - 11:04 AM

Synopsis:

CIBC reflects on the Bank of Canada's (BoC) recent policy decision, highlighting the central bank's stance and the implications for future interest rates.

Key Points:

  1. Status Quo on Rates and QT:

    • BoC maintains the overnight target at 5% and continues its quantitative tightening schedule without changes.
  2. Shift in Language:

    • The BoC's statement shows a less hawkish tone, moving from a potential need for rate hikes to a concern over persistent core inflation. This shift suggests a possible easing of rates in the future.
  3. Growth and Inflation Forecast:

    • BoC's forecasts indicate weak growth in early 2024, followed by a rebound in the latter half of the year. The output gap is estimated at -0.75% at the end of 2023.
  4. Rate Cut Expectations:

    • The BoC's discussions indicate a shift from debating the adequacy of current rates to considering the duration of maintaining the 5% rate. This change signals potential rate cuts later in the year.
  5. CIBC's Forecast:

    • CIBC anticipates the first rate cut in June 2024, with up to 150 basis points of cuts throughout the year to stimulate the economy after its current slowdown.

Conclusion:

The Bank of Canada's latest policy decision suggests a more dovish approach towards interest rates, indicating possible cuts later in the year to address slowing growth and persistent inflation. The BoC's changing rhetoric and forecasts align with CIBC's expectation of rate cuts starting in June, potentially totaling up to 150 basis points in 2024 to rejuvenate the economy.

Source:
CIBC Research/Market Commentary

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