Rate cuts are coming Canada: RBC

After the Bank of Canada held the overnight rate steady for the sixth straight time, economists at RBC predict that streak will soon be broken.

On April 10, the BoC announced that it had held the overnight rate at 5%.

“Based on the outlook, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained. Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains resolute in its commitment to restoring price stability for Canadians, the bank said in a press release.”

Nathan Janzen, Assistant Chief Economist at RBC says despite the fact that inflation readings have actually surprised to the downside so far in 2024, the writing is clearly on the wall for the Bank of Canada.

“The BoC remains cautious about declaring victory over inflation prematurely, but an underperforming economy relative to other regions (particularly relative to the U.S.) and slowing inflation in recent months is edging policymakers closer to the first cut in interest rates,” Janzen today wrote. “Governor Macklem was careful not to suggest a cut is imminent quickly, but also did not dismiss the potential for a cut at the next policy meeting in June. The BoC will get two additional monthly inflation reports, and one more monthly labour market report before the next scheduled policy decision and our own base case assumes a 25 basis point cut in June.”