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Will the Bank of Canada cut interest rates this year? What market watchers are saying

Click to play video: 'Bank of Canada raises key interest rate again, will pause further hikes'
Bank of Canada raises key interest rate again, will pause further hikes
WATCH: Bank of Canada raises key interest rate again, will pause further hikes – Jan 25, 2023

The Bank of Canada will cut interest rates by a half a percentage point to four per cent by December, according to a median of market participants surveyed by the central bank, with borrowing costs seen coming down further next year.

The Bank of Canada on Monday released for the first time a quarterly survey of market participants.

Last month the bank hiked its key interest rate to 4.5 per cent, the highest level in 15 years, and said it would hold off on further increases for now.

None of the 28 market players surveyed predicted that rates would go higher this year, while some forecast that the key borrowing rate could fall to 3.75 per cent by December. A median of those surveyed put rates at three per cent in the fourth quarter of next year.

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After the rate decision on Jan. 25, Governor Tiff Macklem in an interview pushed back against traders who were betting that the central bank would cut rates as soon as October, saying the bank is pausing to determine whether rates must go higher, not lower.

In the same survey, a median of 26 market participants forecast that real gross domestic product will be down 0.4 per cent at the end of this year versus a year earlier, and will bounce back to grow two per cent annually by the end of next year.

The median forecast for annual inflation is 2.9 per cent at the end of the year, which is just inside the central bank’s one-to-three-per-cent target range, compared with 6.3 per cent inflation in December.

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