OTTAWA (Reuters) – The Bank of Canada (BoC) is expected to hold its key overnight rate steady at 5% on Wednesday, economists said, even though data have shown inflation easing and economic growth sputtering.
Inflation has stayed stubbornly above the BoC’s target of 2% for three years, and despite rates being at a 22-year high, Canada’s economy has so far avoided recession and may be picking up steam.
“The bank (BoC) has been quite prudent and our sense is that we won’t see a rate reduction until mid-year, until about June or July,” said Pedro Antunes, chief economist at Conference Board of Canada, an independent think tank.
January’s inflation numbers dipped to 2.9%, falling into the 1%-3% range targeted by the BoC, but Antunes said that was not enough to convince it to cut now. Core price measures, which are closely watched by the central bank, also eased in January.
The central bank’s governing council will announce its decision on the target for the overnight rate at 1445 GMT (0945 local time). The BoC has left rates on hold at its four previous meetings.
After the January inflation figures, money markets edged forward their bets. They now see a 44% chance for a cut as early as April, and they fully price in a rate cut in June.On the other hand, a majority of economists polled by Reuters expect a rate cut in June with a risk that a reduction will be pushed back.
Fourth quarter GDP numbers last week showed that the country’s growth topped expectations, accelerating at an annualized rate of 1.0%, driven by exports.
January GDP likely gained 0.4% from December, according to a flash estimate. Canadian manufacturing activity rose to its highest level in 10 months in February, though it was still contracting, data showed this month.
“We are still of the mind that April is on the table. If not April then more likely June,” said Philip Petursson, Chief Investment Strategist at IG Wealth Management, said in a email about rate-cut timing.
After previous meetings when it left rates on hold, the BoC has pointed toward concerns of underlying inflation in areas like mortgage and rental costs, wages and food prices.
While high rates have cooled inflation to below 3% from 8.1% in June 2022, the BoC forecasts that it will be the second half of next year before it comes down to 2%.
“Look for an ever-so-slightly more dovish tone, while still highlighting that rate cuts aren’t imminent,” Benjamin Reitzes, managing director and macro strategist at BMO Capital Markets, wrote in a note.
Source: Economy - investing.com
