The Bank of Canada (BoC) maintained its current interest rates for the sixth consecutive meeting, signaling a potential shift towards rate cuts but requiring more evidence of slowing inflation, akin to the approach of the Federal Reserve.

The decision to leave the benchmark overnight rate unchanged at 5% was widely anticipated. The BoC adjusted its forecasts, lowering the 2024 CPI forecast to 2.2% while revising upward the 2024 GDP forecast to 2.1%.

However, the 2025 CPI forecast was unchanged at 2.1%, with a downward revision for 2025 to 2.2% from 2.7%.

BoC Governor Macklem emphasized the need for sustained progress towards price stability and expressed caution regarding recent declines in core inflation, Zero Hedge reported.

Discussions within the BoC have shifted towards potential interest rate cuts this year, with economists expecting cuts as early as the June meeting.

Traders anticipate a 25 basis point cut in June, with further cuts possible in July. The BoC, like the Federal Reserve, has also raised its estimate for the neutral rate and is closely monitoring inflation trends.

Canada’s inflation trajectory is diverging from that of the US, which experienced upward surprises in price pressures earlier in the year.

Despite expectations within the BoC governing council for potential rate cuts in 2024, there remains uncertainty about the timing and approach to easing monetary policy.

Written by B.C. Begley