The Bank of Canada made it quite clear Wednesday when it held its interest rate steady at 5 per cent for the fifth session in a row that it is too early to talk about cuts.
“Today’s decision reflects governing council’s assessment that a policy rate of five per cent remains appropriate. It’s still too early to consider lowering the policy interest rate,” governor Tiff Macklem told reporters in a press conference after the decision.
Inflation remains the sticking point and while the central bank acknowledged some progress — headline inflation eased to 2.9 per cent in January — it wasn’t enough.
Core inflation in January remained above 3 per cent and the share of items in the consumer price index basket still running hot are above historical averages.
“The council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” the bank said in its statement.
So we wait. Most economists still expect the first cut in June, but after Wednesday’s decision, markets pared their bets on that timing. A cut for July is still fully priced in.
Others think even that is optimistic.
There are three more inflation readings to come before the bank’s June meeting, and Laurentian Bank economists Sebastien Lavoie and Salim Zanzana think neither February nor March data will show sufficient cooling.
Overall inflation may ease to 2.5 per cent in April, but core inflation might not cool enough for the central bank to cut in June, as Laurentian had been expecting.
Moreover, the Bank of Canada’s business survey in February showed that more companies planned to increase prices in the first quarter of 2024, a halt to progress on the normalization of corporate pricing behaviour, a factor the bank
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