Canada: Central Bank stays put in April
On 11 April, the Bank of Canada (BOC) left the target for the overnight rate at 5.00%.
The Bank judged that it was premature to begin monetary easing, as headline inflation is still close to the top of the Bank’s 1.0%–3.0% target range, while the Bank’s preferred metric of core inflation was above the target range despite dipping in February. In addition, the BOC upgraded its GDP growth projections relative to its January forecasts, reducing the need to cut rates to support the economy.
The Bank of Canada did not provide specific forward guidance on future interest rate moves, and highlighted its desire to see further declines in headline and core inflation—a likely prerequisite for rate cuts. The Consensus is for the target for the overnight rate to end this year around 100 basis points below its current level. That said, panelists have revised up their year-end policy rate forecasts in recent months, and several panelists now see the Bank waiting until Q3 before initiating rate cuts.
On the timing of rate cuts, TD Economics’ James Orlando said:
“Market pricing is still holding onto hope for a June cut (~50%), but July (our call) is becoming more likely. Even though inflation has moved within the BoC’s 1% to 3% target range over the last few months, markets have become more cautious on the timing of cuts. While some of this is coming from the inflation warning in recent U.S. CPI prints, strong Canadian economic growth to start 2024 has been the main driver.”
In contrast, Desjardins’ Randall Bartlett sees monetary easing beginning slightly earlier:
“The Governor observed that policymakers will track various inflation indicators in the months ahead, but suggested that their confidence in the disinflation process has continued to increase. As a result, we remain of the view that rate cuts will begin at the upcoming June meeting.”