Maroc - STOREYS.COM - A La Une - 26/Jun 14:50

“I'm 50/50 At This Point”: Is Another Interest Rate Cut Coming In July?

A month out from the next interest rate announcement experts are already discussing the potential for another cut — along with your neighbour, your mailman, and your friend of a friend who works in real estate.In the lead up to the highly anticipated June 5 rate cut, most were convinced it would happen, and then it did. But this month, the jury seems less certain, even with Tuesday’s news that inflation inched up to 2.9% in May, up from 2.7%.We spoke to experts from across the industry, including the Chief Economist at BMO, Chief Market Analyst at TRREB , and the owner of a leading mortgage brokerage to get their forecast for the July 24 announcement.Douglas Porter, Chief Economist At BMO: “We’ve Got Our Pencil And Eraser In Hand”“At this point, our call is for the Bank to make the next cut in September,” says Porter. “But we are still open to booking one in for July.”For BMO, the decision to amend their September prediction will ultimately depend on the upcoming consumer price reports, the next of which will be eight days before the July 24 rate announcement. “Just like the Bank of Canada, we’re all watching the consumer reports [...] It really hangs on those inflation numbers now,” says Porter. “Let’s just say we’ve got our pencil and eraser in hand, but we will need to see a very mild CPI result before pencilling one in for July." Douglas PorterBut Porter also explains the risk of moving too fast. “If they cut just a little bit too early, and inflation is not truly defeated, it would be a really tough situation if the Bank had to reverse course and start raising interest rates again,” he says. “The last thing policymakers want to do is fire up the housing market again, which by itself could aggravate inflation if we start to see home prices move up meaningfully again.” Loading... In the event that the consumer price reports are encouraging enough to make a July rate cut plausible, Douglas says not to expect a rush of buyers hopping off the sidelines just yet. “I think it might be enough to open the doors to a few new buyers, but we’re not really anticipating a big wave of activity as rates continue to come down further,” he says. “The reality is the affordability situation is still extremely challenging.”Jason Mercer, Chief Market Analyst At TRREB: “I'm 50/50 At This Point”“I think [a cut] is a little more up in the air now with the inflation numbers that came out today,” says Mercer. “I’m 50/50 at this point on whether it happens or not, but if it doesn't happen in July I think we will see more cuts starting in the fall.”As an argument to cut, Mercer points to excess supply in the housing market. “Even if we start to see an increased number of buyers as we move through the fall, there would still be quite a bit of inventory that would need to be absorbed before we start to see real upward pressure on pricing,” he says. “So there is some room to cut because of that.” Jason Mercer storeys.com But he also warns that if supply of new homes doesn’t match the pace of rate cuts, we could be in a sticky situation. “Once we absorb the inventory that's built up over the last few years, market conditions will tighten up unless you start to see more supply coming on,” he says. “So we ultimately need to see more shovels in the ground.”If there is a cut in July, Mercer doesn’t see the housing market springing to life just yet. “Our consumer polling suggests that there’s a lot of households that are looking to see 100 or 200 basis points worth of cuts before they’re back in a more affordable housing situation.”Ron Butler, Founder Of Butler Mortgage: “They Probably Should Have Cut In April”“I think Tiff Macklem surprised people a little bit,” says Butler on the BoC Chair’s June 5 rate cut. “But he can’t get too far ahead of the U.S Federal Reserve.” Ron Butler storeys.com Butler estimates that Canada has room for three more cuts before the U.S Fed makes any cuts, but warns that things could get tricky if the BoC surpasses that number. “If our rates go down too fast and the Americans stay right where they are, then our dollar becomes worth less and less compared to the US dollar.”But Butler is a proponent of ‘more is better’. “The truth is, they probably should have cut in April,” he says. “I think we’re going to consistently see more bad news about the Canadian economy as we move into the rest of the year, and at a certain point, it’s going to become very clear that rate cuts were needed.”His prescription? “I think they should cut up to 75 basis points of total rate cuts this year without the Fed cutting. Then, once the Fed starts to cut, the BoC can match cut for cut.” Though, he does add that the Fed likely won’t make any cuts until after the U.S election cycle is over in November. His forecast? The BoC will take July off, giving the Fed a chance to catch up, and then cut in September. “That way we can probably cut again in October and November.”