Notes From the Desk: Bank of Canada Rate Announcement – Let’s Enjoy The Moment
The Bank of Canada (BoC) became the first G7 central bank to cut rates this morning, lowering the overnight rate from 5% to 4.75%.
Reading the tea leaves:
The accompanying statement and press conference were decisively more ‘dovish’ than anticipated.
- Governor Macklem stated, ‘it is reasonable to expect further cuts’ with the timing being data-dependent.
- He noted the drop in CPI from 3.4% in December to 2.7% was substantial progress on underlying price pressures.
- He stated that the economy was clearly in ‘excess supply.’ Inflation usually falls when the economy is in this condition.
Overall, the tone indicated the Bank expects to be on a steady path of rate cuts.
The loonie and fed divergence:
For those skeptical that the BoC could go ahead of the Fed, Macklem stated there are limits, but we were ‘not close to those limits.’
The implications:
We expect them to cut again in July and see it as reasonable for the overnight rate to reach 4% by year-end.
