Insights and Strategies
"Let's Just Enjoy the Moment," But What Comes Next?
On June 5 the Bank of Canada (BoC) lowered its policy interest rate for the first time in over four years, after holding its rate at 5.00% for the past 11 months. This was welcome news for an economy experiencing a slowdown in growth and rising unemployment. The start of the easing cycle offers the promise of some relief for mortgage holders, although renewals over the next couple of years will generally still be at higher rates than the ones expiring. When asked whether the June rate cut would be followed by another in July, BoC Governor Tiff Macklem responded, “Let’s just enjoy the moment for a bit,” which reminds us that while we are relieved to have entered this new phase, future rate cuts are not guaranteed and upcoming rate decisions will remain data-dependent and judged on a meeting-by-meeting basis.
Nevertheless, this first rate cut signifies that the Canadian economy is transitioning into a rate easing cycle. While the BoC is not pre-committing to any particular path for lowering the policy interest rate, we anticipate three more cuts this year and another four next year, bringing the policy interest rate down to 3.00% by mid-2025. During rate easing cycles, economic trends can evolve quickly. Therefore, as investors, we can't enjoy the moment for too long; it’s crucial to consider what might lie ahead. In this publication, we will examine past rate easing cycles to gain some insight into how major economic indicators and sector market performance might unfold in the current cycle.
