CA - Bank of Canada Preview: Time Is Ripe For A Cut
2024-05-30 05:00:00 ET
Summary
- We think markets are underestimating (16bp) the chances of a rate cut next Wednesday.
- Consensus is split, but with inflation within the BoC’s comfort band and unemployment rising, we see policymakers narrowly favouring a 25bp cut.
- However, the BoC may be cautious on signalling further easing as the rate spread with the Fed may widen excessively.
By James Knightley & Francesco Pesole
Why we expect a cut next week
Out of 26 banks surveyed by Bloomberg, there are 16 going for a 25bp rate cut by the Bank of Canada on 5 June, versus 10 favouring the BoC keeping the overnight lending rate at 5%. Markets are seeing a similar balance of probabilities, with around a two-in-three chance of a 25bp rate cut currently priced. The data is seemingly arguing in favour of a move, and we think, given the BoC's history of being prepared to make bold calls, that it will narrowly opt for a 25bp cut. The caveat is that BoC officials haven't been especially vocal on the prospect of a cut, and they may instead choose to use this meeting to tee up a move in July. A move at that meeting is currently fully priced by financial markets....
Bank of Canada Preview: Time Is Ripe For A Cut