“I thought that they might open the door a little bit to the possibility of rate cuts,” Porter said. “There was the one slight nod in that direction, that they see some signs that wage pressures are starting to ease a bit.

“But I think the overriding message was that we all have to be patient – this is going to take some time. They need at least a few more months of good inflation data, or better inflation data, before they can become comfortable. And I think the watchword here is patience.”

Could the BoC push back its timeline for rate cuts?

BMO’s forecast still envisages a first cut by the central bank in June. Still, Porter said that’s by no means a “foregone conclusion” – and that there appears next to no chance of the Bank deciding to start cutting earlier.

“A lot of things would have to go miraculously right in the next five weeks to get them cutting in April,” he said. “I seriously doubt they’d be ready. Even June is starting to look a little bit questionable, because they’d have to start teeing that up relatively soon if they’re expecting to cut rates into June.”

Would-be homebuyers waiting for rates to start falling were left disappointed by the Bank’s latest call, although it seems increasingly clear the days of rate hikes are in the past.

Prospective buyers are likely to take confidence from the chance of lower rates at some point in 2024, Porter said – but they shouldn’t expect a rapid decline in rates after the first cut.

“I think if you’re looking to get into the market, you would be somewhat encouraged by the talk that rates are likely to come down slowly, gradually,” he said. “But you might not be thrilled about the caution that the central bank governor has indicated around that view, that this is going to take some time and rates are not going to come down as fast as they went up.

“I like to say rates took the elevator up; they’re going to take the staircase down. This is going to be a pretty slow walk down the mountain, I think.”

If economic trends continue to play out as expected, Porter said BMO expects the Bank of Canada to trim rates to 4% by the end of this year and 3% by the end of 2025 – although that’s by no means a surefire thing in light of the central bank’s continuing cautious outlook.

“I think if we’re going to be off, it’s that rates are a little bit higher than what we’re projecting at the end of both years,” he said. “In other words, this whole backing down in rates might take a little bit longer.”

Should the Bank of Canada be focusing on different inflation measures?

The Bank has faced criticism in recent weeks for its focus on inflation measures that include shelter costs and mortgage interest payments, both of which have rocketed amidst rate hikes since 2022.

Those measures, critics have highlighted, will remain high as long as the Bank keeps interest rates at their current elevated level.

Nonetheless, Porter said there’s a case to be made for the Bank’s current approach – and noted that CPI-median, one of governor Tiff Macklem’s preferred ways of gauging inflation that isn’t heavily influenced by mortgage interest costs, has remained high.

“I appreciate the fact that outside of mortgage costs alone, inflation is basically at 2%. That is true,” Porter said. “But some other costs have actually come down because mortgage rates are up. Things like new home prices have actually dropped because mortgage rates are up.

“I think if you look at the overall shelter basket, it’s pretty indicative of what shelter costs are doing…. And the median measure is still rising by more than 3%. If I had to pick one number that I’d be watching in the months ahead, it would be that median price measure. And I do think it’s not a bad measure. It’s fairly pure, and it doesn’t really get affected directly by those soaring mortgage interest costs.”

Source CMP
By Fergal McAlinden