Right Now, It’s Still a Guess
As the Bank of Canada continues to hold its Key Rate, economists continue to dissect the message coming from BoC officials. Statements at the release of the latest policy report reaffirmed the Bank’s outlook that Monetary Policy is working. Total inflation and core inflation have eased in recent months, and the BoC expects inflation to continue to edge closer to the 2% target this year.
However, Governor Tiff Macklem tempered the statement by pointing out that U.S. economic growth, employment, and inflation data continue to surprise decision-makers universally which is likely a reason why the U.S. Fed held its Benchmark Rate on May 1st.
Two areas the BoC is likely watching:
• If rates are cut prematurely, our economy may wander out of step with our neighbour.
• If rates are cut too aggressively, our dollar would likely drop against the U.S. greenback.
Either way, it could mean trade growth, an economic boost, but inflationary pressure here at home. Plus, the BoC is likely also considering if lower rates would reignite housing markets across the country.
You may have noticed that lately the BoC is sharing positive news with a somewhat hawkish perspective, so any move it makes or doesn’t make, won’t surprise financial markets or inadvertently impact the economy. This leaves pundits to ponder… when. The BoC’s April Market Participants Survey shows that, overall, economists see a rate move by September. But, a Reuter’s Poll has the majority of economists surveyed predicting a June cut.
With ongoing U.S. economic data clouding forecasts and squeezing away some of the Bank of Canada’s wiggle room, we’ll see what the BoC decides next month. We will keep you posted.