Should you expect rate cuts in 2024? Markets are divided

Paul break down the decision for us well as you said and as was almost universally expected the Bank of Canada Marcia has held its key lending rate at 5% uh the bank however does Clearly say that it believes uh its earlier rate hikes are having their desired effect at

Slowing economic activity and bringing inflation down the bank says for instance uh higher interest rates are clearly restraining spending it says the labor market continues to ease uh it says that these and other factors quote suggest the economy is no longer in excess demand excess demand is something

That fuels uh inflation when you have a a surplus of dollars chasing a relative shortage of good goods and services and it concludes the slowdown in the economy is reducing inflationary pressur so all of that is good uh all of that uh seems to be evidence that it was not necessary

At this on this day for the bank to raise its interest rate further now you and I talked earlier about uh an anticipated subtle change in language in the statement versus the statement in October we did get that subtle change now it’s extremely subtle the last time

The bank made a statement in its final paragraph This is on October the 25th it said inflationary risks have increased and there was speculation that the bank might either eliminate or soften that statement today and it did soften that statement this time around it says the bank is quote still concerned about

Risks to the outlook for inflation so still concerned but uh certainly a softer tone on the possibility of inflationary pressures in the Canadian economy the bank does say it remains prepared to raise the policy rate further if needed it said that the last time around but the setup to that

Statement is a little softer and so um uh so the messaging to the bank I think is that uh rate increases are still possible but they’re less POS less likely than they were three months ago right still leaving that door open just a teeny weeny bit and I think Paul A lot

Of people are now looking ahead to 2024 and the possibility of a cut right and there’s been some interesting move uh uh Marcia interesting moves in the fixed income Market immediately at 10:00 when the bank uh made a statement when I spoke to you earlier this morning uh I

Noted that uh in a in a a version of the fixed income Market or a corner of that market called the overnight index swaps Market which trades on expectations of interest rates there was a strong majority call for the Bank of Canada to reduce its Benchmark interest rate in

Early March of next year as soon as this statement was released that market adjusted its uh its Collective thinking if you want to call it that to a 50/50 call in in the overnight index swap Market it’s now a a coin toss as to whether we get a rate cut in early March

Or not the that that market is now uh uh very strongly calling for a rate cut uh in April on April the 10th so the thinking of the market is uh that uh rate uh rate cuts are coming but they’re not coming as fast as the market thought

Uh earlier this morning got it all Paul thank you so much for that really appreciate the analysis he

BNN Bloomberg’s Paul Bagnell breaks down the Bank of Canada’s interest rate decision and if it means cuts are coming next.

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