Ottawa Should Be Cautious About Abrupt Immigration Changes, Economists Warn
Economists urge Ottawa to be cautious about abrupt changes in immigration policy, highlighting potential economic and social implications.
The Bank of Canada is anticipated to announce a substantial interest rate cut this week, as inflation rates have dropped below the central bank's target. With the annual inflation rate falling to 1.6% in September, forecasters predict a half-percentage-point reduction in the policy rate, aiming to stimulate economic growth.
The latest consumer price index report from Statistics Canada has revealed a significant drop in the annual inflation rate, which now stands at 1.6%. This figure is notably below the Bank of Canada's target of 2%, prompting discussions about the need for aggressive monetary policy adjustments.
Nathan Janzen, an assistant chief economist at RBC, emphasized that the current economic conditions warrant a reduction in interest rates. He noted that the economy is not performing optimally to control inflation, and maintaining high interest rates could further hinder growth.
The Bank of Canada has already reduced its key interest rate three times this year, bringing it down to 4.25%. Governor Tiff Macklem has indicated a willingness to continue cutting rates if inflation continues to decline. The central bank aims to foster economic growth while managing inflation effectively.
Economists are now predicting that the Bank of Canada may implement consecutive rate cuts in both October and December, potentially lowering the policy rate to 3.25%. The parliamentary budget officer has projected that rates could further decrease to 2.75% by the second quarter of 2025.
Despite a modest growth in the Canadian economy, real GDP has contracted on a per-capita basis for five consecutive quarters. The unemployment rate has also risen to 6.5%, a full percentage point higher than the previous year. This economic backdrop raises concerns about the effectiveness of interest rate cuts in stimulating growth.
Carl Gomez, chief economist at CoStar, pointed out that Canada’s real interest rates, adjusted for inflation, are significantly higher than those in other countries. This disparity places additional pressure on the Canadian economy, which is already facing challenges.
The anticipated interest rate cuts are expected to have a notable impact on the housing market. While lower rates typically stimulate activity, the current demand remains weak, leading to a buyer's market. Home prices are still declining, and many potential first-time homebuyers are deterred by high prices and rising unemployment among younger demographics.
Janzen noted that while falling interest rates could improve affordability, the overall housing market may not experience the usual surge in activity due to the concurrent softening of labor markets.
In addition to the interest rate announcement, the Bank of Canada will release its quarterly monetary policy report, which will include updated economic forecasts. This report is expected to provide further insights into the central bank's strategy moving forward, as it navigates the complexities of a changing economic landscape.
As the Bank of Canada prepares for its announcement, all eyes will be on the implications of these potential rate cuts for the broader economy and the housing market.
Economists urge Ottawa to be cautious about abrupt changes in immigration policy, highlighting potential economic and social implications.
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