Analyzing Rate Cut Expectations and Insights on our Radar

There are indications from the Bank of Canada about the monetary policy shift anticipated in June this year. The rate cut expectations from the Bank of Canada came out after the aggressive rate hikes to curtail inflation in the country.

Although previous increased interest rates effectively controlled inflation, they also hampered economic growth. The first quarter of 2024 witnessed GDP growth in Canada falling short of predictions, intensifying fears of a potential recession. This, correlated with signs of cooling inflation, has led the BOC to reevaluate its strategy regarding market rate cut expectations.

Currently, the key interest rate has been kept at 5% by the Bank of Canada, but Governor Tiff Macklem hinted that there might be an interest rate revision in June. According to Mr Macklem, “I realize that what most Canadians want to know is when we will lower our policy interest rate. What do we need to see to be convinced it’s time to cut?” While replying to a question, he added that it is “within the realm of possibilities.

When it comes to what financial experts are saying, they are divided on the timings and extent of these expected rate cuts. The prevailing forecast indicates a moderate reduction of 0.25% by June, while a greater cut is expected by July this year. Forecasts for further cuts indicate a 0.75% drop by March 2025 and a significant decrease of 1.00% by September 2025.

Although a reduction in interest rates would offer relief to Canadians burdened with excessive financing expenses, it could depreciate the Canadian dollar. Consequently, this may result in increased costs for imported commodities.

Given the current state of the Canadian economy, the BOC will have to take steps carefully while maintaining a balance between inflation control and recession prevention. While all the businesses, consumers, and investors will be closely watching the next decision of BOC in June 2024, CanAm Bullion will keep updating our viewers. Stay tuned for more information on Bullion and the economy in the country.