Three-Quarters of Market-Watchers Call for Another BoC Interest-Rate Pause

Wahi asked real estate industry professionals — including economists, academics, and REALTORS® — about their predictions for the Bank of Canada’s next rate announcement.

By Josh Sherman | 3 minute read

Leading up to each scheduled BoC rate announcement, Wahi surveys upwards of a dozen real estate leaders to gauge market sentiment and find out where the industry thinks rates are headed.

Market-watchers are overwhelmingly expecting the Bank of Canada to keep its finger on the pause button at the central bank’s next scheduled rate announcement on Wednesday, June 4.

Three-quarters of respondents to Wahi’s latest Rate Outlook Panel predict the BoC is going to maintain its influential overnight rate at 2.75%, just as it did in April.

In the days leading up to each rate announcement, Wahi  surveys upwards of a dozen real estate industry professionals, including economists at some of Canada’s biggest banks as well as academics and analysts. Respondents to Wahi’s Rate Outlook Panel are asked whether they anticipate a rate cut — and, if so, by how much — as well as the reasoning behind their decision.

This is the most decisive survey result since Wahi’s Rate Outlook Panel began gauging market sentiment this March, when just under two-thirds of respondents accurately predicted a cut. It also represents a shift in sentiment from April, when market-watchers were split on whether or not the BoC would further reduce rates.

Most of the nine respondents who expect the central bank to remain on the sidelines cited economic uncertainty, particularly amid trade tensions with the U.S., as a cause for policymakers to take a wait-and-see approach.

“At this point, I don’t really think there’s any reason for them to decrease their rates other than they’re looking at employment data and assuming it will get worse,” Jeremiah Shamess, head of Colliers’ Private Capital Investment Group, tells Wahi.

Economic uncertainty is one of two main reasons that Frank Clayton, co-founder and senior research fellow at Toronto Metropolitan University’s Centre for Urban Research and Land Development, anticipates a hold. “Secondly, I think the growth has turned out to be a little bit better than people expected,” he adds.

Canada’s economy surpassed growth expectations in the first quarter of the year. Canadian gross domestic product grew by 0.4% on a quarterly basis in Q1, according to Statistics Canada. 

“The economy is sending out a variety of mixed signals, so the need for a cut is not overwhelmingly clear,” writes Moshe Lander, senior economics lecturer at Concordia University. “Retail sales in March were up, so some sectors still have some life in them,” he notes. “Rather than cut now and have to reverse course later, it is best for the Bank to hold now and get a clear signal that changing interest rates (i.e., in which direction and by how much) is necessary.”

In uncertain times, there’s a precedent for the central bank to exercise caution, suggests Shaun Hildebrand, president of Urbanation. “Normally when the Bank is conflicted, they choose to hold until there is more clarity,” he writes in his panel response.

Penelope Graham, a mortgage expert and director of content at Ratehub.ca, points to rising prices of consumer goods as justification for a rate hold at the moment. “The BoC will do what it can to counter steadily rising prices in key consumer spending categories by withholding rate stimulus for now,” she writes.

Policymakers typically use interest-rate cuts to spark economic activity. Lower interest rates encourage spending, but this increased demand can also bring higher prices (read Wahi’s Overnight Rate Explainer for a detailed explanation on the relationship between rates and the economy).

Higher Unemployment Could Spark a June 4 Rate Cut: Wahi Rate Outlook Panel

All three respondents who predict the Bank of Canada will trim the overnight rate by 25 basis points this Wednesday cite a shakier labour market as a concern. The Canadian unemployment rate edged higher in May to 6.9%, up 0.2 percentage points from the previous month, according to Statistics Canada’s most recent Labour Force Survey.

“Unemployment is rising. Delinquency rates are rising… the cracks in the economy are showing,” Daniel Foch, chief real estate officer at Valery.ca, tells Wahi.

Wayne Kainu, head of mortgages at Neo Financial, echoes Foch’s remarks. “The labour market’s flashing warning lights,” he tells Wahi. “That usually spells trouble. My gut says the BoC won’t wait and make a move before things get worse,” he continues.

While Pauline Lierman, vice president of market research at Zonda Urban, notes that inflation has been cooling, she too emphasizes softness in the job market as reason to expect a cut. “Some of the instability has also waned now that we are past the election cycles; however,  rising unemployment, particularly in the province of Ontario, is challenging,” she says.