OTTAWA (Reuters) – The Bank of Canada (BoC) is likely to cut its key overnight rate for the first time in more than four years on Wednesday, economists said, backed by a raft of data that points to cooling inflation and lackluster economic growth.
Consumer prices have stayed below the upper range of BoC’s 1-3% target this year and gross domestic product (GDP) expanded more slowly than expected in the first quarter, with stalled growth in March.
The central bank aims to keep inflation at the midpoint of its target range.
These data points have been further backed by easing wage inflation, rising business insolvencies and softer retail sales, economists said.
“There’s more slack in the economy than the Bank of Canada previously estimated,” said Randall Bartlett, senior director of Canadian economics with Desjardins Group, adding this situation would likely tilt the bank towards a June cut.
The central bank’s monetary policy committee will announce its interest-rate decision on Wednesday at 1345 GMT (0945 local time).
Financial markets are betting on an almost 83% chance of a rate cut on Wednesday.
Starting more than two years ago, the BoC has cranked up borrowing costs by 475 basis points to a more than 23-year high of 5% in its efforts to tame inflation, which touched a peak of 8.1% in June 2022, a four-decade record.
The bank has kept the key rate at the current level since July.
While these efforts helped in easing inflationary pressures, the path towards the BoC’s 2% target has been slow.
“If we lower our policy interest rate too early or cut too fast, we could jeopardize the progress we’ve made bringing inflation down,” Governor Tiff Macklem said in April during the previous monetary policy decision announcement, saying the bank was seeking more data to be sure of a cut.
Almost three-quarters of economists polled by Reuters last week predicted the bank would trim interest rates by 25 basis points in its June meeting.
However, some economists and analysts thought the BoC could wait until July for a cut, to benefit from two more sets of data each on inflation and jobs and one GDP reading.
“We haven’t established this (inflationary) trend down… I think the Bank of Canada is going to just be cautious,” said Brooke Thackray, research analyst with Global X, a fund management company.
Source: Economy - investing.com
