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Despite rates unchanged at 5% today and a conservative approach due to past forecasting errors, the Bank of Canada (BoC) is signaling a dovish stance, hinting at a June cut with eased conditions for rate cuts. rate.
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The Bank of Canada’s monetary policy report shows a more dovish outlook, with inflation expected to fall to 2.8% in the first quarter and 2.2% in the fourth quarter of 2024, with a target of 2%. here 2025.
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Updated potential output growth of 2.5% for 2024 suggests the economy can grow without fueling inflation, thus supporting a soft landing.
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Despite positive revisions, caution reigns over the demand outlook and slow underlying inflation, suggesting a quicker return to the inflation target.
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Anticipation of a rate cut by the Bank of Canada at each meeting starting in June, potentially reducing the key rate by 125 basis points to 3.75%, unless external factors, such as US inflation or rising oil prices, do not change course.
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The March US inflation report affected market expectations, reducing the BoC’s planned rate cuts from three to two and a half for the year.
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The rate cuts expected by the BoC, unlike a more inflationary United States, could widen the rates of USD/CAD swaps, favoring an increase up to a range of 1.38 to 1.40 in the second quarter, without however exceed 1.40 due to the lower risk of recession in Canada and the policy trajectory of the Fed.
This article was written by Arno V Venter on www.forexlive.com.
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