Morgan Stanley expects the Bank of Canada to make three additional interest rate cuts in 2024, bringing its benchmark rate down to 4% by the end of the year.
The forecast followed the Bank of Canada’s first rate cut of 25 basis points at its June meeting, lowering the rate to 4.75%.
“Progress on inflation has strengthened the Bank of Canada’s confidence that inflation is on a steady path toward its 2% target,” Morgan Stanley said. The Bank of Canada cited encouraging inflation data as a key factor in its decision to initiate rate cuts.
While the bank remains cautious, signaling a “gradual” easing cycle, Governor Macklem expressed confidence in further cuts. Analysts interpret this as a sign that “even more policy normalization is ahead than currently projected for 2024-25.”
This dovish move from the Bank of Canada compared to its April stance has implications for currency markets.
“We continue to recommend December 2024 and long positions to the Bank of Canada,” the bank said. “We believe Governor Macklem’s change in tone regarding the April meeting regarding the Fed-BoC disagreement supports our view that markets can expect further BoC cuts to benefit in the coming months.”