Major bank economists give their views on what the BoC will do next
When the Bank of Canada announced its latest interest rate decision this week there was no real surprise at the hold steady, but the central bank’s governor’s comments have raised a few eyebrows.
Tiff Macklem confirmed that the Canadian inflation data was heading in the right direction to justify rate cuts, with a core CPI stats at the top end of its 1-3% target but set for further easing back into the range.
However, with the Fed suggesting a more cautious approach to rate cuts south of the border, markets were not entirely convinced that Canada will move ahead with as many rate cuts as had previously been hoped. The TSX dropped 0.7% or more than 162 points – its largest drop since February 13 - to close at 22,199.13 on Wednesday.
Big six bank economists have a mix of opinions.
“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,” stated Nathan Janzen, assistant chief economist at RBC Economics.
Andrew Grantham, executive director and senior economist at CIBC Capital Markets is also optimistic that the BoC could make a move next month.
“We currently forecast a first interest rate cut in June and a total of four 25bp moves before the
end of the year,” he said. “To steal a line from Governor Macklem's press conference today, that outlook still appears to be within the realm of possibility but is reliant on core inflationary pressures sustaining their current lower rates or easing further.”
Others have lower expectations of imminent rate cuts.
“Market pricing is still holding onto hope for a June cut (~50%), but July (our call) is becoming more likely,” said James Orlando, CFA, director & senior economist at TD Economics. “Should economic growth weaken further, and inflation remain on its current trajectory, we could see the BoC readying markets for the cuts in short order.”
And Derek Holt, economist and head of Capital Markets at Scotiabank is also not expecting a rate cut in June, and he’s concerned that the BoC may be facing a credibility problem.
“In my opinion, a cut in June requires absolute perfection between now and then which means there is a material risk that Macklem was somewhat careless today,” he said, adding that if there is a June cut, it could be the only one this year. “Markets are basically saying they'll only cut twice this year and so they’re leaning in that direction. Leaning, in other words, in the direction of only token easing because they’re not buying the case for a whole lot to be done this year.”
