BENGALURU (Reuters) – The Bank of Canada will cut its key interest rate in June, a strong majority of economists in a Reuters poll said, although they also said the risk was the first cut would be later than that, rather than a surprise earlier move.
Rebounding economic activity, and inflation still above the 2% target despite interest rates at a more than two-decade high, mean the central bank has little reason to make an urgent move this month.
At the last policy meeting in March, BoC Governor Tiff Macklem said monetary policy was working “largely as expected” despite upside risks to inflation, stemming partly from rising shelter costs.
All 38 economists expected the BoC to hold its overnight rate at 5.00% on Wednesday, according to a March 28-April 5 Reuters poll. The BoC will release new economic projections along with its rate announcement on April 10.
While most say the BoC is not about to surprise markets with an early move on Wednesday, it is unclear whether it will automatically cut at the following meeting.
“We shouldn’t expect the Bank of Canada to show all its cards,” said Avery Shenfeld, chief economist at CIBC Capital Markets. “But there will be some sense they’re more satisfied with the recent data on inflation and therefore the door will certainly be open to interest rate cuts before the end of the year.”
LATER THAN JUNE?
Over 70% of economists, 27 of 38, expected the BoC to deliver its first 25 basis point rate cut in June to 4.75%, in line with market pricing. Seven predicted the first cut would come in July, and the remaining four said September.
Among the top five Canadian banks TD Bank and Scotiabank expected the BoC to move later than June.
An over-80% majority of economists, 13 of 16, who answered an additional question said the timing of the first rate cut was more likely to be later than they expect. The other three said earlier.
Eleven of those 16 economists also said the greater risk was the BoC would deliver fewer rate cuts this year than in their base case scenario.
“The biggest risk is the rate cut will be delayed because of the recent pop in economic growth and if the Bank puts too much weight on that, there’s a risk they wait a little longer before providing interest rate relief the economy does in fact need,” Shenfeld added.
The BoC is forecast to cut rates by a cumulative 100 basis points to 4.00% by end-2024, according to the poll, less than the 75 basis points expected from the U.S. Federal Reserve.
However, a significant minority, 14 of 38, expected shallower cuts than that, with only six expecting more.
But with an unexpectedly better domestic performance, high prices for one of Canada’s top exports, crude oil, and its U.S. neighbour generating strong growth, economists say inflation pressures may linger.
“I do wonder whether inflation will fall much further from here because growth overall has held up a little bit better than expected,” said Douglas Porter, chief economist at BMO Capital Markets.
“The risks to our call would be the possibility of the Bank starting to cut later and at a slightly slower pace than what we suggested.”
Inflation was forecast to ease over the coming quarters but remain above the 2% target until Q2 2025.
Economic growth was expected to average 0.8% this year before bouncing back to 1.8% in 2025, a slight change from 0.5% and 2.0% predicted in January.
https://ca.yahoo.com/news/boc-start-cutting-rates-june-133525027.html
