(Bloomberg) -- The Bank of Canada’s decision to begin cutting interest rates ahead of the Federal Reserve will ultimately lead to a “big tailwind” for the Canadian economy, Toronto-Dominion Bank economist James Orlando said.

Canada’s economy is projected to grow just 0.9% this year, well below the estimated 2.3% growth in the US, according to a Bloomberg survey of economists. Canadian consumers are more sensitive to interest rates — they have more debt than US households, on average, and mortgage rates are reset more frequently. 

That’s why rate cuts are a big deal for Canada, Orlando said in an interview on BNN Bloomberg Television. 

“We’re going to be able to have less of our disposable income go into mortgage payments,” he said. “That, in effect, will be able to close a little bit of this gap between Canada and the United States because we have just been suffering under the weight of these high rates for so long.”

Policymakers at the Bank of Canada lowered the overnight interest rate to 4.75% earlier this month — the first cut in more than four years — and signaled that more reductions are likely, as long as price pressures continue to ease. 

A reacceleration of inflation has lowered the odds of another rate reduction in July — the consumer price index rose 2.9% year-over-year in May, up from 2.7% in the prior month, Statistics Canada said this week. But rates are clearly on a downward path, said Orlando, director and senior economist at the bank. 

“We had so much uncertainty in Canada — now we’re getting more certainty,” he said. Toronto-Dominion economists expect the Bank of Canada to cut its policy rate to 2.25% by the start of 2026, he added.

The Fed has yet to start cutting rates, and TD predicts the first cut to come in December. Unlike Canada, the US hasn’t had “any growth sacrifice” from higher interest rates, Orlando said. 

“They spent a decade deleveraging after the global financial crisis,” Orlando said. “American consumers are in such better position going into the high rate environment than Canadians were.” And the availability of 30-year mortgage rates in the US is an additional buffer to rising rates, compared with Canada’s shorter terms, which are typically a maximum of five years.

--With assistance from Erik Hertzberg.

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