In its recent announcement, the Bank of Canada (BoC) opted to keep its benchmark interest rate at 5%. This decision aligns with the ongoing economic changes, marked by rising annual inflation, which reached 3.4% in December last year. Despite these numbers, there's a consensus among economists that the Canadian economy is slowing.

BoC Governor Tiff Macklem highlighted a shift in conversations at the central bank. Instead of questioning whether interest rates are high enough, the focus has shifted to understanding how long current rates need to be maintained. This marks the fourth consecutive hold from the central bank.

Experts anticipate that rate cuts may start between spring and summer of 2024. Macklem, however, cautioned that rates could still rise if inflation doesn't cooperate.

Economists Predict Recession Amid Economic Slowdown

While Canada might not be in a recession currently, economists forecast a looming economic downturn in the first half of 2024. This prediction is based on the cumulative impact of aggressive rate increases.

The anticipated slowdown is expected to affect various economic aspects, including declines in investment and exports, a weakening U.S. economy, and an increase in unemployment rates. Consumers grappling with higher mortgage payments in a high-interest rate environment are likely to reduce spending, contributing to the economic squeeze.

Implied Probability of Rate Cuts

Looking ahead, the BoC's next meeting is scheduled for March 6th. The implied probability of a rate cut at that meeting, based on overnight index swaps, is currently at 15.5%. Implied probabilities and rates for all the BoC meetings this year are below, this has proven to be a very popular table. As always, implied probabilities are tools with some predictive capacity, but caution is advised as they come with uncertainties.