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Canadian consumers and businesses pin hopes on lower interest rates: BoC

Click to play video: 'Bank of Canada says it’s still ‘too early’ to cut interest rates'
Bank of Canada says it’s still ‘too early’ to cut interest rates
RELATED: Bank of Canada says it's still ‘too early’ to cut interest rates – Mar 6, 2024

Canadian consumers and businesses are less pessimistic about the future, suggest findings from the Bank of Canada released on Monday.

Consumers continue to feel the negative impacts of high inflation and interest rates and nearly two-thirds are cutting or postponing spending, according to the BoC’s quarterly survey on consumer expectations.

But it also showed Canadians are expecting lower interest rates in the coming 12 months and “are less pessimistic about the future of the economy and their financial situation.”

The Bank’s matching first quarter survey on businesses showed signs of returning optimism as well. Business owners believe Canada’s population growth will lead to more sales and they are also expecting interest rates to decline in the next year.

The Bank held the interest rate at 5.0 per cent for the fifth consecutive time in March, with Governor Tiff Macklem saying it was “too early” to cut it. Canada’s inflation slowed to 2.8 per cent in February.

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Economists have predicted that Canadians could begin to slowly see rate cuts starting with the June 5 BoC interest rate announcement or later this year.

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Consumers, who base their perceptions of inflation on their own experience buying items like food and gas, believe inflation has slowed, the report stated.

Canadians’ current sentiment remains weak because inflation and interest rates are high, but “fewer (consumers) think they will need to further cut or postpone spending,” the report said.

Click to play video: 'Have Bank of Canada’s interest rate hikes over 2 years worked?'
Have Bank of Canada’s interest rate hikes over 2 years worked?

About three-quarters of businesses surveyed said current interest rates are negatively affecting their business, though many are also slightly optimistic.

“Firms hampered by reduced consumer spending over the past 12 months expect their sales growth to increase over the next 12 months,” it stated, based on the belief interest rates will drop.

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Owners reported that demand remained weak, citing customers’ financial situations and the recent economic slowdown. But overall, they believed conditions “improved slightly” in the first quarter across nearly all regions, sectors and firm sizes, following nearly two years of deterioration.

A little less than a quarter of businesses are planning for a mild recession and three per cent are planning for a severe recession, both figures decreasing from the last quarter of 2023, when 31 per cent planned for a mild recession and six per cent planned for a severe one.

And the report showed more people are planning to buy or are thinking of buying a house or condo, rising from 13 per cent on average of those surveyed last year to 15 per cent in the first four months of 2024.

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