Will the next rate change by the central bank be a cut?

According to one economist, the world has changed significantly since the Bank of Canada’s last rate meeting.

A banking crisis hit the global financial system, OPEC+ announced an unexpected supply cut, increasing the possibility of higher inflation, Canada’s economic performance turned out to be better than anticipated.

In spite of the fact that all these factors are pulling the economy in different directions, almost all economists expect the BoC to keep its overnight rate unchanged at 4.5% this Wednesday.

Although the global banking crisis is heading toward a calmer side, the economy’s strong beginning of the year means it’s too soon for the central bank to forget about rate hikes entirely.

Economists at Capital Economics expect the Bank’s next change to be a rate cut in October.

Capital says the strong beginning of the year will not be long-lasting, with the economic activity slowing down in the middle of 2023.

At the same time, inflation has cooled more than the BoC predicted, now heading to 5.2% in the first quarter, which is below the expected 5.4%.

Capital predicts a rapid decline in core inflation in 2023 as the national economy enters a modest recession. This, in turn, will lead to a rate decline at the end of this year.

The first cut is expected in October, followed by 0.25% drops at most meetings until the rate stops at 2.5% in the middle of the next year – it’s slightly sooner than the markets suggest.