One economist has warned the Bank of Canada not to make another rate cut next week, amid speculation that it may do just that.
“Cutting rates will only risk inflaming housing imbalances while doing little for the external sector of the economy that primarily depends upon what the world hands Canada via commodity prices and US growth,” Derek Holt, vice president and head of capital markets economics at Scotiabank wrote in a recent monetary policy report. “Cutting rates now or soon will transfer future housing and consumption demand to the present and limit policy flexibility down the road.”
Holt believes any further rate cut this year would “do more damage than good over time” and he laid out several
arguments against it; including the fact that the bank believes there are currently no disinflation or deflation problems.
And it’s a stance shared by some industry players.
“Personally, I think they should keep it the same; there haven’t been enough changes to the Canadian economy to warrant any change,” Marcel Duguay of Centum Mortgage Loans Inc. told MortgageBrokerNews.ca. “I don’t think it would help the economy at all if they were to lower it; it’s just a matter of keeping it where it is until things improve.”
Still, four of 15 economists surveyed by Bloomberg last week believe a rate cut is in the offing next week.
“Going into the July meeting, there’s certainly a risk that the bank might cut,” David Tulk, chief Canada macro strategist at Toronto-Dominion Bank told Bloomberg Business. “This will extend the bond outperformance. You could see U.S. yields a lot higher and Canada could outperform on a clear divergence in monetary policy.”
The Bank of Canada made its first rate cut in over four years this past January, citing inflation concerns amid dropping oil prices. It was a move that caught many industry pundits off guard.
Governor of the Bank of Canada Stephen Poloz recently justified that cut in his usual colourful way.
“If the doctor says you need surgery to avoid death, the side effects don’t usually deter you,” he told a conference in late June, according to the Globe and Mail.
The central bank’s next rate announcement is scheduled for July 15.