TD Bank’s chief economist predicts that the Bank of Canada rate cut might not happen till July. The prediction of a July rate cut is against the predictions made by many other economists. Beata Caranci said in a Tuesday interview with BNN Bloomberg that the decision to introduce a July rate cut allows the Bank of Canada more time to understand the inflation situation.
The Next Possible Bank of Canada Rate Cut
Caranci said that the Bank of Canada rate cuts might take some time due to recent changes. With positive news about inflation easing in the US and expectations of early Canada rate cuts shifting, the central bank is likely to hold off on Canada rate cuts for now. This approach allows them to understand if inflation remains high, and they have the flexibility to wait.
Caranci said that while the central bank may get pressure to introduce Canada rate cuts in June, it must go about it carefully to avoid a policy misstep. She added about the Canada rate cuts and talked about the importance of maintaining credibility.
Her opinions come after the release of GDP data showing sluggish growth in Canada’s economy. This data has led people to believe in the possibility of a June rate cut. Some economists said that delaying Canada rate cuts beyond June could push the economy into a recession.
Caranci highlighted the importance of aligning the Bank of Canada rate cut decisions with those of the US Federal Reserve to avoid currency instability. She cautioned against being too aggressive with Canada rate cuts, as this could lead to a significant decline in the Canadian dollar if the Fed chooses not to cut rates until later in the year.
Caranci said that if the Bank of Canada rate cut decision moves too much from the US Federal Reserve’s decisions, the Canadian dollar could weaken significantly. It could also go below 70 cents against the US dollar. While the Bank of Canada does not directly target the currency, it needs to weigh the potential impact on imported inflation and investor confidence.
Caranci said that the Bank of Canada rate cut needs to be better thought out. While it may not alter their decision to start introducing the Bank of Canada rate cut, it will likely slow down the pace of Canada rate cuts.
The latest data from Statistics Canada show a slowdown in Canada’s economy during the first quarter. GDP grew by only 0.2% in February, coming below analysts’ expectations. With growth expected to remain slow in March, there is increasing speculation that the Bank of Canada may introduce a June rate cut.
The economic slowdown adds more pressure on the central bank to introduce Bank of Canada rate cuts. This time it may be as early as June, according to Benjamin Reitzes, a strategist at BMO Capital Markets. Analysts had predicted a 0.3% growth in GDP for March. However, Statscan’s preliminary estimate suggests that GDP remained unchanged from February. This comes along with gains in utilities and real estate offset by declines in manufacturing and retail trade.
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