By Paul Vieira
OTTAWA--Market participants believe the Bank of Canada will likely start cutting rates in the spring, with the policy rate ending 2024 a percentage point lower than its current 5% level, according to a central bank survey.
The quarterly survey, conducted in late December, is based on responses from about 30 financial-market participants on questions regarding the economy and monetary policy. Last week, the Bank of Canada kept its policy rate unchanged at 5%, and said senior officials are focused on how long it needs to stay at 5% to wrestle down stubbornly-high inflation.
Since the survey was conducted, data indicated that inflation accelerated in December, to 3.4% from 3.1% in the prior month, and the economy produced growth at a faster clip in the fourth quarter than the Bank of Canada had forecast. Those results prompted some economists to push back their timeline for projected rate cuts, to closer to midyear or the third quarter.
The median from 27 responses indicated the first cut of a quarter-point, to 4.75%, would come in April. By December, a median of 27 responses had the Bank of Canada's policy rate sitting at 4%.
The median from 26 responses suggested Canada would record growth in 2024 of 0.8%. In another question, the median response from 25 questions indicated that participants believed there was a roughly 50% probability of a recession in the first half of this year.
The Bank of Canada sets the policy rate to achieve and maintain 2% inflation. Over 40% of respondents predicted inflation would be in the 2% to 3% range at the end of this year, while over a quarter, or 26.4%, indicated it would be in the 1% to 2% range.
At testimony last week before Canadian lawmakers, Bank of Canada Gov. Tiff Macklem said further deceleration in inflation would be "gradual and uneven," and that the path toward 2% would be slow. He reiterated that central bank officials need ample evidence that inflationary pressures are easing and inflation "is clearly headed back to 2%" before they could discuss rate reductions.
Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
02-05-24 1127ET
