Bank of Canada to Hold Rates at 2.75% But Cut at Least Twice More This Year

• The Bank of Canada will hold interest rates at 2.75% on Wednesday as policymakers await further news on an economy that grew faster than expected last quarter, with at least two more cuts likely this year, according to a majority of economists in a Reuters poll.
• That strong consensus around the upcoming decision came after data on Friday showed the economy grew quicker than predicted last quarter, at 2.2%. The surprising growth was primarily driven by exports as U.S. companies rushed to stockpile Canadian goods before U.S. President Donald Trump's tariffs took effect.
• Lower household spending and weak domestic demand, however, suggest a downturn is coming. Also, Trump's recent announcement that he would double tariffs on imported steel and aluminum to 50% could further worsen the outlook. Still, solid economic growth in Q1 and core inflation flirting with the upper end of the BoC's 1-3% target range will provide ample reason for the central bank to hold rates this week for a second straight meeting.
• Prior to the release, economists were unsure about the decision. Among top Canadian banks, BMO, CIBC, and TD shifted their call to a pause from a cut, while Scotiabank stood pat on their earlier view of no change. The BoC has already cut the rate by a cumulative 225 basis points since June 2024.
• Although there was no clear consensus on where rates would be by end-2025, nearly 75% of economists - 17 of 23 - said the BoC would cut rates at least twice more this year, including eight forecasting another two reductions, seven saying a further three cuts, and two a further four.

(Source: Reuters)