12/14/2023
Canada's economy is exhibiting signs of a slowdown, fueled by higher interest rates, raising speculation about the Bank of Canada's next rate decision. Economists predict the bank might maintain a 5 percent rate, as lower-than-expected September inflation figures and decreased retail sales suggest an economic cool-down.
Stephen Brown from Capital Economics raised concerns about a potential 5 percent decline in home prices over the next six months. An influx of new listings and cautious buyers could weaken GDP growth and reduce core inflation pressures. The higher savings rate among Canadians indicates that the interest rates are working as intended, leading to increased savings due to higher rewards amid raised rates.
This trend could be influenced by mortgage renewals, as Canadians prepare for higher costs or fail to qualify for additional borrowing. The decision to hold rates is not certain according to economists from National Bank. While September's inflation figures were softer, the inflation profile remains higher than what the Bank of Canada would prefer due to strong reports in August and July.
The Bank is left with no leeway to downplay its threat of further rate hikes despite clear signs of demand deterioration. Retail sales numbers reveal a significant reduction in consumer spending due to higher interest rates. There has been a 5.7 percent annualized sales decline when considering Canada's growing population, marking the worst pullback since the first pandemic lockdown.
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