Bank of Canada says conditions for rate cuts should emerge this year

By Thomson Reuters Mar 20, 2024 | 12:35 PM

By Promit Mukherjee and David Ljunggren

OTTAWA, March 20 (Reuters) – Bank of Canada (BoC) governors agreed earlier this month that conditions for rate cuts should materialise this year if the economy evolved as forecast, a document published on Wednesday showed.

The mention of 2024 – in minutes of deliberations ahead of the March 6 rate announcement – marked the first time the central bank had officially attached a specific time line in a document to when it might start easing rates from their 22-year high of 5%.

But the minutes also show the six-member rate-setting Governing Council was divided over when there would likely be enough evidence that the conditions were right for cuts.

Governor Tiff Macklem said on March 6 that persistent underlying inflation meant it was too early to consider a cut and declined to lay out a calendar.

But the minutes show that in private, the governing council had been more specific.

“Members agreed that if the economy evolves in line with

the Bank’s projection, the conditions for rate cuts should materialize over the course of this year,” they said.

“However, there was some diversity of views among Governing

Council members about when there would likely be enough evidence that these conditions were in place, and how to weight the risks to the outlook.”

The BoC sees weak growth in the first quarter before picking up gradually to end the year with an annualised growth of 1%.

Inflation is projected to stay around 3% through the first half of 2024, easing to 2.5% in the second half, and returning to the bank’s 2% target sometime in 2025.

Canada’s inflation rate in February eased to 2.8%, the lowest in eight months.

Before the minutes were released, money markets had seen a roughly 24% chance of a rate cut on April 10. They also fully priced in a cut in July.

The minutes also show the governing council was still deeply concerned about the high rate of shelter inflation.

((Reuters Ottawa bureau; david.ljunggren@tr.com))