Bank of Canada to make first cut in April, interest rates to end year at 3.5%, PBO predicts
OTTAWA — The parliamentary budget officer is projecting inflation will return to the Bank of Canada’s two per cent target by the end of the year and the federal deficit will grow amid weakening economic conditions.
The budget watchdog’s latest economic and fiscal outlook comes as the federal government gears up for its spring budget and Canadians eagerly wait for the central bank to begin lowering interest rates.
The report predicts the first rate cut to come in April, slightly earlier than financial markets expect, with interest rates ending the year at 3.5 per cent.
The Bank of Canada is scheduled to make an interest rate announcement on Wednesday and is widely expected to hold its policy rate at five per cent.
High interest rates have weighed on the Canadian economy as consumers pull back on spending and businesses see their sales slow.
Statistics Canada reported last week that the economy eked out one per cent annualized growth in the fourth quarter. That growth was largely due to a boost in exports, supported by strong U.S. spending trends.
The PBO says the economy will likely grow by a modest 0.8 per cent this year, slightly lower than the Bank of Canada’s projection of one per cent.
Meagre economic growth would weigh on government coffers, too.
The PBO anticipates the federal deficit to grow to $46.8 billion for the current fiscal year, provided no new measures are introduced and existing temporary measures expire as scheduled.
That would exceed the federal government’s fall projection of $40 billion.
The report warns that if the Bank of Canada keeps interest rates higher for longer than expected, the deficit could be even larger and the economy weaker.
Finance Minister Chrystia Freeland announced on Monday that
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