This is according to the Bank of Canada’s latest quarterly survey of market participants, which consists of a questionnaire sent to 28 influential players in the financial markets.
Based on the median of the results, respondents estimate that the central bank will make four additional quarter-point cuts by June 2025, bringing the policy rate to 2.75%, before holding it until at the end of 2026.
This forecast contrasts with that of several major banks, such as RBC and National Bank, which predict additional relief of 175 basis points (1.75 percentage points) by the end of 2025, bringing the policy rate to 2. 00%.
Even within the 25th percentile of market participant survey responses, respondents see the policy rate falling to just 2.25% in early 2026 before rising to 2.50% in the second half.
However, a majority of respondents (70%) say that the balance of risks in their forecasts is “skewed towards a lower trajectory”.
Recession fears ease on stable growth forecasts
Expectations of a recession in Canada have also eased in recent months.
In the third quarter survey, respondents estimated a 20% chance of a recession in the next six months, up from 22.5% in the second quarter, and 25% in the next 6 to 12 months. , compared to 30% previously.
Likewise, most respondents see only a 25% chance of a recession over the next 12 to 18 months, also down from 30% in the second quarter survey.
Most financial experts forecast a GDP growth rate of 1.5% for 2024, slightly higher than the central bank’s forecast of 1.2%. Most then forecast average growth of 1.9% in 2025, which is lower than the Bank of Canada’s forecast of 2.1% for the year as a whole.
Respondents identified the main growth drivers as a stronger real estate market, looser monetary policy and relaxed financial conditions. On the other hand, they highlighted increasing geopolitical risks, tightening financial conditions and falling commodity prices as the main threats to their forecasts.
Meanwhile, 72% of businesses surveyed now expect average inflation over the next two years to be within the Bank of Canada’s 1% to 3% target range, up from 43% ago. one year.
Overall, results from the latest survey of market participants suggest demand is still weak and businesses “continue to expect inflationary pressures to ease,” giving the Bank of Canada the green light to move forward with another oversized rate cut in December, it is said. Claire Fan, economist at RBC.
“This combination should be enough of a catalyst for a deeper rate cut of 50 basis points.
of the next BoC meeting in two weeks,” she wrote.
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Last modification: November 5, 2024