Capital Economics has just released an updated forecast, in anticipation of the first Bank of Canada policy meeting next week.

Dated: January 7 2019

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Capital Economics has just released an updated forecast, in anticipation of the first Bank of Canada policy meeting next week.

TL;DR: In direct opposition to what other analysts are saying, Capital Economics predicts that interest rates will actually decrease this year in Canada.

It predicts that the central bank will slash interest rates again this year, in direct contrast to what most other trend reports are anticipating.

The Capital Economics Bank of Canada Watch reads:

“We would not be surprised if the Bank of Canada continues to argue that it needs to raise interest rates. (…) But as it becomes clear that the economy is performing worse than the Bank had anticipated, we expect the Bank to drop this line and ultimately cut interest rates at the tail end of this year.”

In mid 2017 the Bank of Canada began rising its interest rates, following a long period of historically low rates.

Since that period, the central bank has hiked its overnight rate 4 times, by a total of 100 basis points.

The latest hike took place in October of 2018, when the rate rose to 1.75%.

Most economists have anticipated that the rate will continue increasing in 2019, based on hints from the Central Bank itself.

Capital Economics’ opposing perspective is based on an analysis of oil prices, which have plummeted by 40% in recent months. The author of the report claims that the bank is likely to seriously underestimate the overreaching effects of the oil slump – which will cause a significant downturn in the national economy.

The number of active oil rigs has plunged by 20% in December.

Meanwhile, a drop in consumer spending due to tougher mortgage regulations is already showing effect in many Canadian markets.

The research company thus suggests that the central bank will reverse at least one of its recent hikes before the end of 2019.

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Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

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