Canada’s Finance Minister Chrystia Freeland announced on Tuesday that the recent federal budget has created favorable conditions for a reduction in interest rates. Speaking at a conference in Ottawa, Freeland highlighted the government’s deliberate efforts to support a decline in inflation, potentially enabling the Bank of Canada (BoC) to consider lowering rates.
“We have been very mindful of acting in such a way that would create conditions that support the decline in inflation, or creating conditions that would make it possible for the bank to bring interest rates down,” Freeland stated. However, she emphasized the independence of the BoC, noting that the decision to cut rates on June 5 rests solely with the central bank.
The federal budget, presented to Parliament on April 16, outlined over C$50 billion ($36.66 billion) in new spending over the next five years. This increase has led some analysts and economists to caution that it could fuel inflation, potentially delaying interest rate reductions by the BoC.
BoC Governor Tiff Macklem previously mentioned that the federal budget had not significantly altered Canada’s fiscal trajectory. The central bank has maintained interest rates at a 23-year high of 5% since July 2023. Current money market predictions indicate a 64% chance of a rate cut on June 5, with a rate cut in July fully anticipated.
While some economists suggest that the BoC should wait until its next policy announcement on July 24 to cut rates, allowing for the accumulation of more comprehensive data on inflation, growth, and employment, Freeland remains optimistic about the budget’s impact.
“We have been conscious of our side of things,” Freeland said when asked about the timing for a rate cut.