Interest rates could fall as the coming economic downturn hits

Many economists are predicting more rate hikes by the Bank of Canada in July, but at least one strategist thinks the cycle could end soon.

Warren Lovely, chief rate strategist at National Bank Financial, predicts a slowdown in economic growth by the end of the year and into 2024, and when that happens, he believes the Bank of Canada will start cutting rates.

“This will create a situation where we see the reverse movement of rates,” he told Bloomberg on Tuesday.

“I think we can expect that once inflation is brought under control, as the economy cools – and we believe it will – this will set the stage for lower interest rates for the foreseeable future.”

The Bank of Canada raised rates to 4.75% at its last meeting on June 7 in an attempt to curb inflation. With the next announcement scheduled for July 12, many economists are predicting further increases.

However, Lovely believes that another pause is just around the corner.

“Individually, Canadians are under serious financial pressure. If you look at GDP per capita, per capita consumption, individual households are already cutting back on their spending. This tells you that the high interest rates that we already have are working, and we may not need to go even further,” summed up the National Bank Financial strategist.