BoC may cut rates more aggressively, says strategist

Strategist predicts sharper BoC rate cuts amidst low inflation and economic challenges

BoC may cut rates more aggressively, says strategist

An investment strategist has forecasted that the Bank of Canada (BoC) might implement interest rate cuts more aggressively than many anticipate, according to BNN Bloomberg.  

Jeffrey Kleintop, the chief global investment strategist at Charles Schwab, during an interview with BNN Bloomberg, suggested that inflation could dip below the central bank's two percent target, potentially leading to quicker rate reductions.  

He described the upcoming BoC's interest rate announcement in April as pivotal, labeling it a “live meeting.” 

Kleintop estimates a 50 percent chance of a rate cut in April, contrasting with the market's expectation of a 30 percent chance. He attributes his higher estimation to the inflation trajectory and the current economic conditions, which he finds lackluster.  

“Canada is very tied to the global manufacturing supply chain, (a) very resource-dependent economy. We've seen a lot of weakness there, both in China and around the world,” Kleintop explained. 

His predictions rely on data from the Canadian Manufacturing Purchasing Managers Index, particularly a component where business leaders report pricing information, which he believes precedes consumer price changes by about six months.  

This data, according to Kleintop, indicates that inflation might soon fall below the BoC's two percent target, potentially prompting more aggressive rate cuts than currently expected by the market. 

In related news, Canada's inflation rate decreased more than anticipated in January, driven by lower prices for gasoline, airfare, and clothing. The annual inflation rate dropped to 2.9 percent in January from 3.4 percent the previous month.  

Considering these figures, James Orlando, director, and senior economist at TD Economics, has called for the BoC to revise its approach to inflation.  

He highlighted the disproportionate effect of housing costs on inflation, noting that more than half of Canada's total inflation is attributed to shelter costs, which he identifies as the “single biggest factor” hindering the central bank from meeting its two percent inflation target.