The Bank of Canada anticipates the possibility of initiating interest rate cuts sometime this year, but there is a division among governing council members regarding the timing of such actions.
According to the central bank’s summary of deliberations leading up to the March 6 interest rate announcement, governing council members reached a consensus that if the economy and inflation align with the Bank of Canada’s projections, rate cuts may commence in 2024.
While there is agreement on the conditions required for rate cuts—specifically, a sustained easing in underlying inflation—there are divergent views on when these conditions will be met.
Governor Tiff Macklem emphasized caution during the recent rate announcement, expressing a reluctance to move too hastily and potentially needing to reverse course later.
Meanwhile, recent data in Canada indicates a lower-than-expected annual inflation rate for the second consecutive month, reinforcing economists’ expectations of rate cuts around mid-2024.
However, concerns persist within the central bank regarding the possibility of inflation surpassing expectations, particularly due to soaring shelter costs. If housing sector activity rebounds in the spring, it could further elevate shelter price inflation, delaying the return of consumer price index (CPI) inflation to the two per cent target.
Shelter costs, including mortgage interest and rent, contributed significantly to inflation in February, rising by 6.5 per cent compared to the previous year.
The Bank of Canada’s next interest rate announcement is scheduled for April 10.
(This report by The Canadian Press was first published March 20, 2024) Courtesy CP24 /Photo THE CANADIAN PRESS/Sean Kilpatrick