Introduction to Interest Rates
The Bank of Canada held its policy rate steady at 2.75% earlier this month for the second decision in a row as it waits for more clarity on the shifting trade policy and its impact.
Understanding Inflation
Core inflation is on the right path, according to BMO chief economist Doug Porter. In a note to clients, Porter said that core inflation was moving in the right direction, but likely not enough on its own to convince the Bank of Canada to cut again. The central bank will get a look at June inflation figures before its next rate announcement on July 30, and Porter said monetary policymakers will likely need to see underlying inflation drop below 3% to warrant a return to cuts.
Impact of Trade Policy
A separate release from StatCan on Tuesday gave a flash estimate for manufacturing sales in May, showing a 1.3% monthly drop. This decline is attributed to Canada’s tariff dispute with the U.S., which weighed on activity. TD Bank senior economist Andrew Hencic said in a note that the trade war is likely to keep the economy soft in the months ahead, dampening inflation pressures going forward.
Expert Opinions
Experts have varying opinions on whether the Bank of Canada should cut interest rates further. Janzen is less sure that additional interest rate cuts are warranted, citing consumer spending holding firm and government spending expected to ramp up in the coming months. On the other hand, Hencic believes that the soft economic backdrop should give the BoC space to deliver two more cuts this year.
Interest Rate Predictions
As of Tuesday afternoon, financial markets were pricing in odds of a quarter-point cut on July 30 at 34%, according to LSEG Data & Analytics. The decision will ultimately depend on the data over the next five weeks, with the Bank of Canada closely watching the inflation figures and trade negotiations.
Staying Informed
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Conclusion
In conclusion, the Bank of Canada’s decision to hold its policy rate steady is a sign that the bank is waiting for more clarity on trade policy and its impact on the economy. With core inflation on the right path and varying expert opinions on interest rate cuts, it’s essential to stay informed about the latest developments in the financial world. As the Bank of Canada continues to monitor the situation, Canadians can expect more updates on interest rates and inflation in the coming months.
