Tuesday, June 25, 2024

Interest rate cuts forthcoming?

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Douglas Porter chief economist at BMO said he expected annual inflation to fall to 28 percent in April lower than in March

Forecasters expect data on Canadian inflation to ease last month to emerge in this week’s inflation report. But financial markets are still uncertain whether the Bank of Canada will cut interest rates in June.

Statistics Canada is scheduled to release its April consumer price report on May 21. New data on inflation is important for the Bank of Canada. Because, June 5 decision regarding interest rates is approaching.

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Douglas Porter, chief economist at BMO, said he expected annual inflation to fall to 2.8 percent in April, lower than in March. The annual inflation rate was 2.9 percent in March this year. He thinks that excluding unstable prices, the main inflation rate has also come down.

But lower inflation may be needed to convince the central bank to cut interest rates next month, Porter said.

The economy has obviously slowed due to high interest rates. Taking this into account, there is widespread expectation among economists that the central bank may cut policy interest rates in June or July. But recent strong employment data has overshadowed expectations of a rate cut next month. This is why the upcoming inflation report is particularly important to forecasters.

The point is that the Federal Reserve may also delay cutting policy interest rates, which is affecting interest rate cut expectations in Canada. Given the current state of the financial markets, the Bank of Canada’s interest rate cut in June is 40 percent likely, Porter said.

Slow inflation over the past few months encouraged the Bank of Canada to cut interest rates. The trend of core inflation is downward and the possibility of high inflation in the economy has decreased.

Governor Tiff McClam has acknowledged that the central bank is moving towards cutting interest rates. He said, but the central bank needs to see if this downward trend lasts for a long time.

The central bank’s policy interest rate is currently 5 percent, the highest since 2001. Meanwhile, some economists are betting on an interest rate cut in June.

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