The Bank of Canada (BoC) is expected to maintain its key overnight rate at 5 per cent despite recent data indicating easing inflation and sluggish economic growth, according to Bloomberg.
Inflation has remained above the BoC’s 2 per cent target for three years, but the economy has avoided recession.
The Conference Board of Canada anticipates no rate reduction until mid-year, possibly June or July. Although January’s inflation dropped to 2.9 per cent, within the BoC’s 1-3 per cent range, it’s insufficient to prompt a cut now.
Money markets slightly increased their likelihood of a cut, with a 44 per cent chance in April and full pricing in June. Economists are divided, with most expecting a cut in June. However, fourth-quarter GDP exceeded expectations, growing at an annualized rate of 1.0 per cent, led by exports.
January’s GDP is estimated to have risen by 0.4 per cent from December. Manufacturing activity improved in February but remained contracted. While previous concerns focused on underlying inflation in mortgage, rental costs, wages, and food prices, the BoC foresees inflation declining to 2 per cent by the second half of next year.
Analysts expect a slightly more dovish tone from the BoC, acknowledging no imminent rate cuts.
