Relief for Albertans? Bank of Canada expected to cut interest rates this summer: ATB

Click to play video: 'Bank of Canada holds key interest rate at 5%'
Bank of Canada holds key interest rate at 5%
RELATED: The Bank of Canada is holding its key interest rate at five per cent, but suggests a cut could be on the horizon. Mackenzie Gray looks at when that could happen, and what Bank of Canada Governor Tiff Macklem wants to see before making rate cuts – Apr 10, 2024

Consumers should expect some relief from rising interest rates this summer.

Mark Parsons, chief economist for ATB, says while today’s announcement by the Bank of Canada that it’s holding its key interest rate at 5 per cent comes as no surprise, if current economic trends hold, he expects rates will be cut in June or July.

“We think there’s been some progress in some of the inflation readings,” Parsons told Global News Calgary. “Inflation is now below 3 per cent, we are seeing cracks widen in the labour market, we see the unemployment rate is above 6 per cent, so there is good reason to start thinking about cutting.”

His comments echo those from Bank of Canada governor Tiff Macklem who, after releasing the quarterly monetary policy report, said the possibility of a rate cut in June “is within the realm of possibilities.”

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Canada’s inflation rate slowed to 2.8 per cent in February, but Macklem says he wants to see the slower inflation rate sustained for a longer period of time before he’s convinced it’s time to cut the interest rate.

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Parsons says the decision to hold off making any cuts to the interest rate since last July has “put a lot of families under financial stress, forced a lot of families to cut back.”

“We’re seeing that in some of the consumer items, big ticket purchases are declining. We’re seeing a real slowdown in consumer spending, so a lot of families are going to be looking forward to these eventual rate cuts.”

Despite his prediction the Bank of Canada will start to cut interest rates this summer, Parsons says there is a risk the move could backfire by increasing consumer confidence too much.

“(What) a lot of people are doing is waiting for those interest rates to fall before they enter the housing market so that’s something the Bank of Canada is keeping an eye on,” explained Parsons.  “When it starts lowering interest rates, are people going to go out and start buying homes and what’s that going to do to rents and housing prices?

“So that’s something in the back of the bank’s mind that they are watching and its definitely a risk to the inflation outlook.”

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