Will the Bank of Canada keep cutting rates? What an economist thinks

The Bank of Canada cut its overnight rate by 25 basis points, the first drop in more than four years.

The benchmark rate had been at 5 per cent since July of last year, with forecasters widely expecting the move Wednesday --- but is it just the beginning of a round of cutting? An economist says we'll know more about the bank's thinking after the next announcement.

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"July's decision will come with much more analysis," David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, told CTV News Channel on Wednesday. "Next month's analysis will come with a full update of what the Bank of Canada expects to see in terms of inflation."

The next decision will be key, according to Macdonald, because more information is released with "every second announcement," giving economists a bevy of data on Canada's gross domestic product, inflation and how changing rates are impacting markets.

"We'll have a much better idea of what the bank is expecting for the rest of this year."

Will we see more rate cuts?

Macdonald says this cut will "make a huge difference" to the average Canadian, but warns a return to the era of rock-bottom rates is unlikely.

"We're just not going to go back to 0.75 or 1 per cent overnight rates."

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Changes in monetary policy also take a long time to filter through the system, Macdonald warns, even though it can feel like "we're micromanaging the inflation rate month-to-month" with interest rate decisions.

"We're about two years out from when the big rate hikes started," Macdonald told CTV News Channel anchor Marcia MacMillan. "And it's only at the point where about half of Canadian mortgage holders have faced higher rates."

During prepared remarks in Ottawa, Bank of Canada Governor Tiff Macklem said that it's reasonable to expect more rate cuts, but also warned it's far from a guarantee.

"If we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made," said Macklem. “Further progress in bringing down inflation is likely uneven and risks remain."

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It's a sentiment that Macdonald agrees with, and he advises that Canadians should expect to live with higher rates for "basically for the indefinite future."

What could play into the Bank of Canada's thinking about making more interest rate cuts? Macdonald says that next month's GDP numbers will be a key metric for those looking to parse the coming decision.

"They do want to plant a soft landing," Macdonald says. "They don't want to see negative real GDP growth."

What's the impact on the housing market?

Regardless of the Bank of Canada's next rate decision, will today's cut influence on the country's housing market? Macdonald doesn't think "in and of itself" the cut will have a meaningful impact – but what it could do is influence consumer behaviour.

"People are now expecting there to be rate cuts," Macdonald says. "That expectation might be something that will lead to higher home sales, and potentially higher prices."

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He doesn't expects "rapid acceleration" in Canada's housing market, like what was seen during the COVID-19 pandemic, saying it's unlikely the rates will drop that quickly.

"Even if rates come down a little bit, most folks will still be renewing at much higher rates than they started at," Macdonald says. 

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