Bank of Canada Considers July for Interest Rate Cut Weighing Economic Data

Recent indicators suggest that the Bank of Canada (BoC) might hold off on a June interest rate reduction and instead target July for a potential cut. This delay provides the BoC with an additional seven weeks to analyze key economic data, thereby ensuring a more informed decision amidst signs of a slowing economy and easing inflation.

June Vs. July: Evaluating the Timing

While the markets are currently wrestling with the possibility of a rate cut in June, assessing only a 53% chance, a July adjustment seems to be fully expected. Economists believe that the extra time until July 24 would allow the BoC to digest two more rounds each of inflation figures, GDP reports, and job market data, compared to making a rushed decision on June 5.

Andrew Kelvin from TD Securities emphasizes the benefit of this approach, suggesting that the Bank could "cut rates with even greater confidence in July" after confirming the inflation trend. BoC Governor Tiff Macklem has indeed stressed the importance of solid evidence, particularly a sustained easing of core inflation, before commencing a rate cut cycle.

Considerations Influencing the Rate Decision

The BoC is closely monitoring both job figures and economic growth which have shown resilience recently. Despite this, Macklem reassures that further evidence is still necessary. There is also a strategic aspect to syncing the timing of Canadian rate moves with the U.S. Federal Reserve to avoid stark divergences that could impact the Canadian dollar.

Inflation, specifically consumer prices, has slowed to its lowest increase in three years as of April, aligning more closely with the BoC's targets. The core inflation metrics, like CPI-trim and CPI-median, have settled below 3%, edging towards the 2% target.

Additionally, the BoC is set to publish its business and consumer expectations survey on July 15, which will contribute further to the July 24 rate decision, as Scotiabank's Derek Holt notes. Although the BoC could potentially move forward with a cut in June, reflecting its traditionally dovish stance, July remains the likely choice for most economists.

Thierry Wizman from Macquarie suggests a June rate reduction is still possible if the BoC decides to discount the positive employment data, though he admits a July cut seems more probable.

BoC, InterestRates, Economy