An economist from Bay Street said the Canadian economy has slowed down significantly, emphasizing there’s room for an interest rate cut by the Bank of Canada. Additionally, he also said that the actual inflation rate might be lower than what the central bank is estimating it to be.
Interest Rate Cut by the Bank of Canada
David Rosenberg, founder and president of Rosenberg Research, said in an interview with BNN Bloomberg that he believes the Canadian economy is essentially at a standstill.
In comparison to the US, where real GDP growth goes over 3% annually, it’s only 0.9% in Canada. If a population growth of 3.2% is taken into consideration, this means the decline in that activity of the Canadian economy continues in real per capita terms.
Rosenberg mentioned that although the bank recognized in its recent rate decision that the economy has shifted from having too much demand to having too much supply, the bank has not promised to cut rates yet.
He said that there should be no delay in introducing the Bank of Canada interest rate cut. Additionally, he said that the decision of interest rate cut by the Bank of Canada should not be dependent on decisions taken by the US Federal Reserve.
He said that the Bank of Canada has acted independently before when economic conditions required it to but they should act now.
What is the Need for a Bank of Canada Interest Rate Cut
Rosenberg made these remarks after the release of Statistics Canada’s report of a Canadian trade deficit going over $2 billion in March. This amount is far from the $1.21 billion surplus analysts had predicted. This news comes along with the recent GDP data from StatCan showing minimal economic growth in Canada during February and March.
In March, Canada reported a goods trade deficit of $2.28 billion, the largest since June 2023. Additionally, Statistics Canada had revised the country’s trade surplus for February down to $476 million from the previously reported $1.39 billion.
These reports have increased speculation that the key interest rate cut by the Bank of Canada will be reduced at its next policy meeting in June. Most economists tracked by Bloomberg are now predicting a 25-basis point cut.
However, some economists believe the central bank will remain cautious, due to the economic conditions in the US, where rate cuts have been postponed until the end of the year or later due to ongoing inflation.
Rosenberg talking about the interest rate cut by the Bank of Canada said that those worries are exaggerated because Canada measures its CPI differently than the US. Therefore, making a direct comparison unreliable regarding the Bank of Canada interest rate cut.
He said that when unstable elements are removed from Canada’s CPI, the inflation rates are already around or near the Bank of Canada’s 2% goal.
Rosenberg also said that by maintaining its key interest rate at 5% until now, the interest rate cut by the Bank of Canada will need to be introduced in the next year. This might cause a huge downward pressure on the Canadian dollar.
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