once more<\/a>, that the central bank will slash interest rates this year. It’s the exact opposite of what most observers are calling for.<\/p>\n\u201cFor now, as we expect the Bank\u2019s forecasts to be\u2026 more upbeat than our own, we would not be surprised if the Bank of Canada continues to argue that it needs to raise interest rates,\u201d reads a Capital Economics Bank of Canada Watch published today.<\/p>\n\n
\u201cBut 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,\u201d the report continues.<\/p>\n
After years of monetary policy easing and a sustained period of historically low interest rates used to buffer weaker economic conditions, the Bank of Canada began hiking its policy rate in July 2017.<\/p>\n
Since then the central bank has increased the overnight rate, which influences the mortgage market, four more times by 25 basis points each. The most recent hike took place this past October, putting the overnight rate at 1.75 percent \u2014 with many experts anticipating more of the same this year and the Bank of Canada suggesting as much itself.<\/p>\n
Capital Economics is basing its contrary prediction in part on the fact that oil prices are down 40 percent in recent months. The researcher says the central bank has \u201cseriously underestimated\u201d effects from the previous slump in oil prices and sees no reason why that won’t be the case this time around.<\/p>\n
“There are already signs that the oil price slump is having a negative impact at home,” Capital Economics states, noting one estimate indicates the number of active oil rigs plunged 20 percent annually in December.<\/p>\n
Meantime, slowing consumer spending and a cooling national housing market are other factors Capital Economics suggests will have the central bank reversing at least one of its recent hikes before the year\u2019s end.<\/p>\n
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