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Potential Bank of Canada Interest Rate Cut in June: What You Need to Know

April’s inflation data has sparked discussions among economists about the potential for the Bank of Canada to cut interest rates in June. With inflation cooling to a three-year low of 2.7%, down from 2.9% in March, many experts believe the stage is set for the first rate cut of the Bank’s current tightening cycle.

Key Points:

  1. Declining Inflation Rates: Statistics Canada reported that the annual inflation rate dropped to 2.7% in April, the lowest it has been in three years. This consistent decrease over the past four months has many economists feeling confident about a rate cut.
  2. Economists’ Perspectives:
    • Andrew Grantham, CIBC: Grantham noted that April’s data provided a clear indication for the Bank of Canada to start cutting rates. He emphasized that policymakers were encouraged by the recent subdued inflation readings.
    • Andrew DiCapua, Canadian Chamber of Commerce: DiCapua highlighted that a June rate cut is becoming the main consideration due to stable inflation.
    • Tu Nguyen, RSM Canada: Nguyen stated that given the steady decline in inflation within the 1-3% range, a rate cut in June is a “no-brainer.”
  3. Core Inflation and Shelter Costs: Douglas Porter from the Bank of Montreal pointed out that core inflation measures have dipped below 3%, aligning with the Bank of Canada’s comfort zone of 1-3%. However, Randall Bartlett from Desjardins noted that high shelter costs, which increased by 6.4% year-over-year, continue to strain household finances.
  4. Cautious Optimism: Despite the optimistic outlook for a June rate cut, some economists, like Leslie Preston from TD Bank, argue for a cautious approach. Preston believes the Bank might wait until July for more confirmation, although markets are increasingly favoring a June cut.
  5. Future Considerations: Olivia Cross from Capital Economics acknowledges the possibility of a June rate cut but also considers that the central bank might wait until its next meeting in late July. This wait-and-see approach allows for observation of additional inflation data and labor market resilience.

Conclusion: The consistent decrease in inflation over the past few months has set a promising stage for a potential interest rate cut by the Bank of Canada in June. While many economists are optimistic, some advocate for a cautious approach, suggesting a possible delay until July. As the decision approaches, Canadians will be closely watching how these economic indicators influence the Bank’s next move.