Mortgage Digest: 50% odds of a 50-bps October rate cut, experts say

Markets are increasingly betting on the Bank of Canada delivering a 50-basis point rate cut during its October 23 policy decision, with the odds now sitting at around 53%

Even if the Bank doesn’t opt for a ‘supersized‘ rate cut later this month, a smaller quarter-point cut is virtually guaranteed, experts say. That would mark the bank’s fourth consecutive rate cut since it began easing rates in June.

“The Canadian economy continues to grind out sub-potential growth and, with inflation back at the 2% target, talk of more aggressive easing continues,” wrote BMO senior economist Robert Kavcic.

Despite July’s GDP growth coming in slightly above expectations at 0.2% month-over-month, Desjardins economists believe this modest gain won’t be enough to “derail” a potential 50-basis point rate cut by the Bank of Canada.

Economists LJ Valencia and Randall Bartlett emphasize that real GDP gains continue to lag behind population growth, with output per person declining in seven of the last eight quarters—”a streak not previously seen outside of a recession.”

“In all, a solid headline GDP gain [in] July doesn’t change our call that the BoC will likely proceed with a 50-basis point rate cut in October,” they wrote in a recent report. “Easing inflation, ongoing labour market weakness, below trend real GDP gains and more per-person economic weakness provides a strong case for further monetary easing.”

Even if the Bank of Canada opts for a smaller quarter-point rate reduction, Kavcic notes that this doesn’t change the broader outlook. “The bigger picture is that we’re on a quick path back to rates that are closer to, if not slightly below, neutral,” he wrote.

Source: Canadian Mortgage Trends