Goldman Sachs Expects Bank of Canada to Hold Rates, Hints Possible Recession By Investing.com

Investing.com

Published on September 05, 2023 at 15:06

US investment bank Goldman Sachs (NYSE:GS) has predicted that the Bank of Canada will hold interest rates steady in September before implementing a definitive rate hike in October 2023. The forecast comes after Canada’s economy failed to grow in the second quarter of this year, leading Goldman Sachs to believe the country could already be in a “technical recession” if economic output contracts again in the current third quarter.

The Bank of Canada will announce its latest rate decision on Wednesday. The futures markets are also forecasting that the central bank will leave interest rates at their current level. The bank’s benchmark overnight rate is currently 5%, its highest level in 22 years.

Goldman Sachs’ outlook on Canadian interest rates follows recent economic data, which the bank is interpreting as an “encouraging signal that recent rate hikes are working”. A recession is typically defined as two consecutive quarters of negative economic growth. If Canada’s economic output contracted for the second straight quarter, it would fit that definition.

The Bank of Canada uses rate hikes as a tool to manage economic growth and inflation. The expected pause in September could be seen as an opportunity for the central bank to gauge the impact of its recent rate hikes before deciding on further action in October.

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Written by: Investing.com