Soft data bolstering Bank of Canada interest rate cuts in April, some analysts say

financialpost.com:

Analysts who expect the Bank of Canada’s first interest rate cut in April are rare — but they believe economic data may soon prove there’s enough disinflationary pressure to spur policymakers into action.

Forecasters widely expect the central bank to hold its key rate steady at five per cent next week and again on April 10. Seventeen economists in a recent Bloomberg survey unanimously said the first rate cut won’t happen until at least June.

But examining the reasons behind outlier calls can be worthwhile. Last year, Citigroup Inc.’s Veronica Clark was the first in a Bloomberg survey to predict that the Bank of Canada would resume hiking rates in June 2023 after the housing market surged. As more data emerged, other economists began to share her view, and she was ultimately proven right.

Whether or not that happens this time, the dovish analysts who see an April cut say recent data points to a slowing Canadian economy. Inflation decelerated to 2.9 per cent in January and a preliminary retail estimate suggested a sharp pullback in consumer spending at the start of this year.

But the forecasters will need more evidence to strengthen their case, beginning with fourth-quarter GDP data due on Thursday. A soft GDP print, followed by cooling employment, wages and inflation in the coming weeks would clearly signal a weak economy and boost the case for an April cut.

“If the renewed progress is sustained in February’s data, we think the BoC should begin to ease its policy stance back toward neutral, with any delay risking a recession in Canada,” said Simon Harvey, head of FX analysis at Monex Europe. He said price data has already started to align with businesses’ inflation expectations and hiring decisions.

The central bank’s