Bank of Canada Anticipated to Maintain Interest Rate in Upcoming Announcement
The Bank of Canada (BoC) is anticipated to keep its overnight rate unchanged on Wednesday, alongside the release of updated inflation and growth projections. These forecasts are crucial indicators for understanding the central bank’s perspective on the potential easing of borrowing costs.
The BoC governing council has maintained interest rates over the past three policy meetings, following the last hike in July that brought rates to a 22-year high of 5.0%. Although December’s annual inflation stood at 3.4%, above the 2% target but below the peak of 8.1% in June 2022, there is acknowledgment of progress in curbing inflation.
Benjamin Reitzes, Managing Director and Macro Strategist at BMO Capital Markets, notes that while strides have been made, there is still work to be done to return to the 2% target.
Some suggests that rate cuts are likely in 2024, but the BoC will exercise patience, waiting for inflation and expectations to retreat further.
In an unconventional move, the rate decision is set to be announced at 9:45 am ET (1445 GMT), 15 minutes earlier than usual. This announcement aligns with the release of the Monetary Policy Report (MPR), providing an updated economic outlook.
Money markets, having delayed expectations for a cut in April following December’s inflation data, now anticipate a 25 basis points cut in June.
Despite persistent inflation, economic growth has been lackluster, prompting concerns among economists. Some argue that a reduction in interest rates is necessary to prevent a more severe downturn. The third quarter of the previous year saw economic contraction, and the BoC’s business survey indicated a decline in firm orders compared to the previous year. Additionally, a growing number of firms anticipate a recession in the next 12 months.
In October, the BoC forecasted a return to the 2% inflation target by the end of 2025, with a projected 0.8% annualized growth in the third and fourth quarters of the preceding year.
Royce Mendes, Head of Macro Strategy, advocates for the BoC to abandon explicit threats of higher interest rates, emphasizing the real possibility of a recession. Despite maintaining rates, the BoC has retained language in its announcements, indicating a readiness to raise the policy rate further if necessary.