Another big rate cut is coming, says RBC

In the wake of the latest GDP numbers, another 50 basis point cut is on the way.

That’s the opinion of Nathan Janzen, Assistant Chief Economist at the Royal Bank of Canada, who thinks the good stuff in the report is not enough to quell the overarching narrative.

On November 29, Stats Canada reported that Real GDP was up 0.1% in September, noting that this was the the fourth straight months in which service-producing industries increased. Goods-producing industries, meanwhile, fell 0.3%, down for the second consecutive month.

“Some interest rate sensitive sectors (residential investment, consumer spending) showed signs of life in Q3 following the start of BoC interest rate cuts in June,” Janzen wrote in an RBC Economic Update November 29. “But per-capita GDP was still down for a 6th consecutive quarter, and with soft growth momentum extending into monthly estimates into early Q4. The GDP numbers should help to reinforce that interest rates are higher than they need to be to maintain inflation sustainably at a 2% rate. The BoC will also be watching next week’s labour market data closely, but our own base-case assumption is for another 50 basis point cut to the overnight rate in December.”

In late October, The Bank of Canada cut interest rates by 50 basis points, to 3.75%.

““We took a bigger step today because inflation is now back to the two per cent target and we want to keep it close to the target,” Bank of Canada governor Tiff Macklem said. “Today’s interest rate decision should contribute to a pickup in demand.”’