Peak rates in sight but don’t expect cuts soon: Tal

By Mark Burgess | November 14, 2022 | Last updated on November 9, 2023
2 min read

The Bank of Canada may have slowed its pace of interest rate hikes as it looks to avoid overshooting, but investors shouldn’t expect rates to start falling anytime soon, CIBC’s deputy chief economist says.

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As it continues its fight against rising prices, the BoC has two options, Benjamin Tal said: inflation or recession. “They will take a recession any day,” he said.

Far more important to the central bank is ensuring that “inflation is dead,” Tal said. “You want to make sure that you don’t repeat the past mistakes of the 1980s when monetary policy was eased prematurely and we had a double-dip recession. So, they will take their time before they cut interest rates, and they are very clear about it.”

The BoC slowed its pace to a half-point rate hike on Oct. 26 in an attempt to avoid overshooting, or a monetary policy error that contributes to a recession, Tal said.

But that doesn’t mean the central bank is done. He expects the rate to rise again this year from 3.75% to 4.25% or even 4.5% before Tiff Macklem and co. hit the pause button. And once rates reach their peak, Tal doesn’t expect cuts to begin until at least 2024.

Slowing the pace of hikes also doesn’t mean a recession can be avoided. Tal said his base-case scenario is for a mild or technical recession with a drop in GDP but little impact on the labour market — “with the labour market basically bleeding vacancies as opposed to jobs.”

In a less likely scenario of stickier inflation, Tal said, the central bank may have to raise rates above 5%, leading to a real recession and rising unemployment. That could force the BoC to start cutting again next year.

For now, Tal said there’s enough positive news on inflation to support the mild recession scenario.

U.S. inflation eased to 7.7% in October, coming in below expectations and leading equity markets to rebound on the news last week. (The Canadian figure will be released this week.)

“The most important story is that the external shock to inflation, namely supply chain, is starting to diminish,” Tal said. “And that’s extremely important because the more you see supply chain [issues] diminishing, the more power the Bank of Canada has over inflation.”

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Mark Burgess

Mark was the managing editor of from 2017 to 2024.