Bank Of Canada Expected To Cut Rates This Week As Inflation Slows

• The Bank of Canada (BoC) is widely expected to cut its key overnight rate on Wednesday for a second time in as many months after recent data showed a further easing of consumer price inflation, restrained spending, and a lackluster economic outlook.
• The BoC trimmed its policy interest rate by 25 basis points to 4.75% last month after keeping it at its highest in more than two decades for nearly a year. In making its first cut in four years, it became the first Group of Seven central banks to do so since the pandemic.
• Taylor Schleich, rates strategist at the National Bank of Canada, pronounced that “A rate cut is likely to be delivered”. He went on to add that he expects the central bank to reiterate its message that future cuts will be based on incoming data. At the time of the last cut, BoC Governor Tiff Macklem said any future rate reductions would be data-dependent. Financial markets are seeing almost a 93% chance of a rate cut this week, and a total of 75 basis points drop in borrowing costs this year.
• The BoC will announce its monetary policy decision on July 24 at 9:45 a.m. It will also release the quarterly Monetary Policy Report, which will include fresh forecasts regarding 2024 economic growth and inflation. Economists expect them to be lower than previous forecasts.
• "The economy is now operating with visible disinflationary economic slack ... with the Bank likely to again mention mortgage renewals as a drag ahead," Avery Shenfeld Managing Director and Chief Economist of CIBC Capital Markets, wrote in a note. Despite the persistent economic weakness, the BoC would likely refrain from making rate cuts deeper than 25 basis points.
• Canada's economic growth has been positive this year but barely encouraging. Rising unemployment has also highlighted economic constraints and underlying fears of recession. The bulk of the growth has been attributed to an immigration-led rise in population rather than any inherent strength of the economy. In its latest Monetary Policy Report in April, the bank estimated growth in 2024 would come in at 1.5% and 2.2% in 2025.

(Source: Reuters)