Posthaste: The Bank of Canada should watch this 'hurdle' to rate cuts like a hawk
The Bank of Canada‘s June 5 interest rate call is looming ever closer, presenting the tantalizing possibility of a first interest rate cut in just over four years. But there are still hurdles to clear before the central bank can pull the trigger, one Big Six bank economist is arguing.
After blockbuster April jobs numbers left markets second-guessing the wisdom of calls for a June rate trim, many Bay Street number crunchers turned their attention to Canada’s May 21 consumer price index (CPI) report, describing it as key to the next rate decision.
Bank of Montreal’s chief economist Douglas Porter called the back-pedalling on a June cut “kneejerk,” in a note last Friday, though he did acknowledge the surprise addition of 90,000 new jobs “will give the bank some pause.”
However, he said he is wary of placing too much importance on one “lone” CPI report, and argues that U.S. inflation lurks as a “hurdle” for the Bank of Canada and rate cuts.
U.S. inflation has recently accelerated, causing markets to erase almost all Federal Reserve interest rate cuts for 2024, except for possibly one in December.
Prices outside the volatile food and energy categories rose 0.4 per cent from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, those core prices were up 3.8 per cent, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.
“Another sour result there may well sink rate cut prospects overall, as it would reinforce the message that inflation truly is stuck at just above three per cent,” Porter said in his note.
Three per cent is the top end of the Bank of Canada’s target range for
Read more on financialpost.com
