“The surprise interest rate cut by the Bank of Canada and resulting downward revision to our interest rate forecasts this year and next—we expect another 25 basis point cut by the Bank in the near term and historically low bond yields to rise more gradually than we assumed previously,” the Royal Bank
of Canada wrote in its Canadian Housing Forecast update.
Canada’s largest bank has forecasted the BoC overnight rate will sit at 0.50 per cent by year’s end before climbing back up to two per cent by the end of 2016. The overnight rate currently sits at ¾ of a per cent.
Meanwhile, the five-year bond yield is expected to climb slightly to 1.8 per cent by end-of-year 2015 and reach 2.8 by the end of 2016.
RBC is the third bank to predict a pending rate cut from the central bank, with both CIBC and TD Bank making the same claim.
“The Bank of Canada unexpectedly cut the overnight rate by 25 basis points in mid-January, on the negative impact of lower oil prices on inflation and the real economy. At that time, it also signaled that it saw most of the risks to inflation to be tilted to the downside,” TD’s economic update, published in late January states. “Given our weaker oil price, inflation, and output forecast relative to the Bank, it therefore holds that we expect some of those downside risks to be realized.
“As such, we forecast that the Bank of Canada will cut the overnight rate by an additional 25 basis points at its next fixed announcement date in March.”
Three out of the five major banks have now predicted further rate cuts to come from the Bank of Canada, though this one doesn’t expect these record rates to last long.