The recent decision of Bank of Canada to maintain its interest rates at five percent for the sixth consecutive announcement didn’t come as a shock to experts. However, it did serve as a signal for potential cuts in the coming months, particularly during the summer.

Governor Tiff Macklem emphasized that while conditions for a rate cut are emerging, he prefers to witness sustained progress before implementing any reductions. This stance aligns with the consensus among economists, as indicated by Warren Lovely, chief rates strategist and managing director at National Bank Financial. He described the decision as “pretty appropriate,” reflecting the sentiments of his peers.

Lovely highlighted the Bank of Canada‘s unpredictability compared to other major central banks. He noted that past decisions have kept economists guessing, but the recent announcement seemed to meet expectations. The central bank’s rhetoric suggests a wait-and-see approach, indicating a readiness to lower rates with sufficient evidence of progress, particularly in inflation metrics.

Anticipating a potential rate cut in the near future, Lovely speculated that July is the most likely timeframe, though June remains a possibility. He projected that the Bank of Canada could implement two to three rate cuts within the year, contingent upon the evolution of inflation.

Echoing this sentiment, economist Tu Nguyen from RSM Canada forecasted the first rate cut to occur in June, cautioning against delay to avoid repeating past mistakes of tardy action. She pointed to the slowdown in inflation, coupled with a weakening domestic labor market and global factors such as China’s export of deflation, as contributing factors.

Phil Mesman, portfolio manager at Picton Mahoney Asset Management, observed the Bank of Canada’s cautious yet patient approach, acknowledging the influence of U.S. inflation dynamics. He noted the challenge of balancing Canada’s easing inflation and labor market issues against the backdrop of persistent inflationary pressures in the United States.

Adding to the discussion, Brooke Thackray, research analyst at Horizons ETFs, highlighted the dilemma faced by the Bank of Canada amidst elevated inflation levels. Thackray suggested that Governor Macklem would likely require more concrete evidence of inflation stabilization before considering a rate cut. He speculated that a release of low inflation data could pave the way for the Bank of Canada to initiate its first rate cut at the next scheduled meeting in June.

Overall, experts concur that while the Bank of Canada refrained from cutting rates in its recent announcement, the possibility of rate cuts looms on the horizon. The decision will hinge on sustained progress in inflation metrics and the labor market, as well as the resolution of external factors, particularly U.S. inflation dynamics