Wednesday’s move by the Bank of Canada – the first cut from a central bank among G7 nations since 2020 – was widely expected by economists and markets. (REUTERS / Reuters)
The Bank of Canada cut its benchmark interest rate by 25 basis points to 4.75 per cent on Wednesday, the first reduction in more than four years, and said further cuts may be coming if inflation continues to ease.
Wednesday’s move – the first cut from a central bank among G7 nations since 2020 – was widely expected by economists and markets. Many economists have forecast an additional cut in July, while markets began pricing in a 35 per cent chance that rates drop to 4.5 per cent next month after the decision was released, according to Reuters.
“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2 per cent target has increased over recent months,” Bank of Canada Governor Tiff Macklem said in a prepared opening statement.
ADVERTISEMENT
“If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2 per cent target continues to increase, it is reasonable to expect further cuts to our policy interest rate. But we are taking our interest rate decisions one meeting at a time.”
First cut 'is the most significant'
Although a 25-basis-point cut will not provide a significant amount of relief for borrowers facing the most financial strain, the cut marks a turning point in one of the most aggressive tightening cycles in the Bank of Canada’s history. Since March 2022, the bank has hiked its benchmark rate by 475 basis points to 5 per cent.
“The first cut may not necessarily be the deepest, but it is the most significant, as it marks the official turning point after more than two years of restrictive policy,” BMO chief economist Douglas Porter wrote in a research note.
“This is indeed likely to be the first of a series of cuts, although that series is not going to be a straight line down by any means. The Bank's tone is a bit more dovish than expected, but each and every cut this year will require evidence that inflation is calming.”
Macklem repeatedly stressed in a press conference on Wednesday that the central bank will be taking its interest rate decisions “one meeting at a time.” He noted that further progress on inflation “is likely to be uneven” and there remain risks to inflation going forward, including if global tensions rise, if house prices increase faster than expected, and if wage growth remains high.
But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made.BoC Governor Tiff Macklem
“We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” Macklem said.
The central bank also said it will closely watch the evolution of core inflation, the balance between supply and demand in the economy, inflation expectations, wage growth and corporate pricing behaviour.
“If the economy continues to evolve broadly as we had expected, if we continue to see inflation pressures easing, it is reasonable to expect that there will be further cuts in interest rates, but the timing of those cuts or of any further cuts is going to depend on incoming data and our assessment of what those data mean for the future path of inflation,” Macklem said.
“The work is not done. We’re going to be seeing how things evolve and taking our decisions one meeting at a time.”
Evidence has been mounting to support the Bank of Canada’s decision to cut. Inflation has cooled, easing from 3.4 per cent in December to 2.7 per cent in April. The central bank’s closely watched measures of core inflation have also eased, falling below 3 per cent in April. At the same time, the labour market has also been growing at a slower pace than population, and the central bank said wage pressures appear to be moderating gradually.
Economic growth in the first quarter was slower than the Bank had forecast. Still, with growth resuming, and signs of strength in consumption, business investment and housing, Macklem said that the sought-after “soft landing” is in sight for the Canadian economy.
“So far it is looking like a soft landing. The plane hasn’t been landed yet, so we’re not cheering yet. But I would say the runway is in sight,” Macklem said.
How many cuts should Canadians expect?
While many economists expect the central bank will cut rates in July, there is uncertainty in terms of how many more cuts Canadians will see by the end of the year. RBC’s Claire Fan, CIBC’s Andrew Grantham, and National Bank’s Taylor Schleich and Warren Lovely said they expect three more cuts in 2024. Vanguard chief economist Roger Aliaga-Diaz anticipates one or two additional rate cuts. TD senior economist James Orlando said “we believe that the path forward for the BoC is going to be slow.”
The central bank has four interest rate decisions remaining this year.
“How many rate cuts and how quickly they come will depend heavily on the data continuing to cooperate,” Desjardins senior director of Canadian economics Randall Bartlett wrote in a research note on Wednesday.
“Regardless, rates should move gradually lower as ongoing mortgage renewals and a slower pace of population growth weigh on economic activity, potentially to a greater degree than the Bank currently anticipates.”
LIVE COVERAGE IS OVER39 updates
Alicja Siekierska
Canadian banks lower prime rates following BoC cut
Canada's biggest banks reduced their prime rates on Wednesday following the Bank of Canada's interest rate cut.
RBC, BMO, TD, Scotiabank and CIBC each lowered their prime rates by 25 basis points, from 7.2 per cent to 6.95 per cent.
The prime rate is the annual interest rate that banks and financial institutions use to set interest rates for variable-rate mortgages, lines of credit, and some other loans.
John MacFarlane
Reasons for and against a July cut
When it comes to the timing of a second BoC cut, two opposing considerations are at play, says Phil Mesman, portfolio manager and co-head of fixed income at Picton Mahoney Asset Management.
“A cut and pause, makes the most sense as the Bank of Canada doesn’t want to get too out of line with the Fed,” Mesman wrote in a note. “That said, it’s been rare not to further cut in subsequent meetings at the start of an easing cycle.”
Monetary policy in Canada has seen a handful of easing cycles in the past 25 years, ushered in by events such as the pandemic and the 2008 global financial crisis. In most of those, initial rate cuts have happened in quick succession.
The 25 basis point cut today is “appropriate,” especially given the speed at which interest rates rose to “extremely restrictive levels” after the pandemic, Mesman wrote, and it gives them ample room to react to new pressures. “Starting at such a restrictive stance, the Bank of Canada is able to move pre-emptively with hopes to avoid a recession and guide a soft landing.”
Alicja Siekierska
'It's about time' the BoC cut rates, says Ontario Premier Doug Ford
Ontario Premier Doug Ford is optimistic the central bank's decision to cut could help spur housing construction in the province.
According to the Canadian Press, Ford said the first cut was a good start but that the Bank of Canada should lower interest rates as quickly as it raised them.
"I believe that when you lower the interest rates, the homes will pop up like mushrooms all over the place," Ford told reporters.
"I'll be all over the Bank of Canada and I'll never stop until they continue lowering the interest rates."
Scotiabank's Derek Holt says Macklem's 'credibility is in tatters'
Bank of Canada Governor Tiff Macklem takes part in a news conference, after cutting key interest rate for the first time in four years, in Ottawa, Ontario, Canada June 5, 2024. REUTERS/Blair Gable (REUTERS / Reuters)
Scotiabank vice president and head of capital market economics Derek Holt had expected the Bank of Canada to hold off on cutting rates until July. Following the rate decision on Wednesday he said that he "will never believe another word from Governor Macklem."
"A few months ago he was saying he needed more data and then he turns around and cuts rates," Holt said, according to Reuters.
"I think the governor's credibility is in tatters. After letting inflation run (out of control) for four years, four months of data is not enough to cut rates."
Read more on what Holt and other economists had to say here.
John MacFarlane
Mortgage holders and small businesses to benefit: Manulife
Today’s cut will be welcomed especially by mortgage holders and small business owners “who borrow at very elevated rates and offer higher wages to their workers,” writes Dominique Lapointe, Manulife Investment Management’s director of macro strategy.
The BoC’s explicit mention of future cuts “telegraphed further easing,” Lapointe says, and presented a “still optimistic” outlook on the economy. “Hence, somewhat stronger-than-expected growth would not prevent future cuts if inflation continues to move down.”
With the rate still at 4.75 per cent, and with signs of a slowdown in the U.S. Manulife doesn’t expect the economy to overheat. “Hence, a July cut is more likely than not, as of writing.”
These positive signs should still be received prudently, however, Lapointe warned Canadians. “Rates will only decline gradually and depending on someone's circumstances, patience might be warranted with regards to debt taking.”
John MacFarlane
The last time the Bank of Canada cut rates
Stephen Poloz was the governor of the Bank of Canada the last time the central bank cut rates. REUTERS/Blair Gable (REUTERS / Reuters)
The context during the last Bank of Canada rate cut, on March 27, 2020, was somewhat different. The world was in the early days of the COVID-19 pandemic. The BoC’s surprise 50bp rate cut that Friday was the third and final cut in that era, bringing the overnight rate to 0.25 per cent.
The TSX was not buoyed by the BoC announcement, closing down around 2 per cent at 12,687.90.
At the news conference to announce the cut, Stephen Poloz, Bank of Canada governor at the time, said “going lower is a theorotical possibility but not one we’re contemplating.”
John MacFarlane
Consumers welcome financial relief, but will hold on big purchases
“Most Canadians plan to be very measured with their spending until multiple rate cuts are made,” said Martha Vallance, COO of Dye & Durham, in a release following today's Bank of Canada rate cut announcement. "Today’s decision is still a good signal by the Bank of Canada and one that will have a positive effect on the economy overall."
A recent consumer sentiment survey from the legal software firm showed that most Canadians — unsurprisingly — looked forward to an interest rate cut.
Vallance said that “many Canadians have been struggling with these higher rates, delaying purchases like housing, autos and more.”
National Bank expects July cut, ‘gradual’ pace thereafter
Governor of the Bank of Canada Tiff Macklem speaks during a news conference on the Bank of Canada's rate announcement, in Ottawa, on Wednesday, June 5, 2024. THE CANADIAN PRESS/Justin Tang (The Canadian Press)
National Bank economists Taylor Schleich and Warren Lovely write that BoC governor Tiff Macklem’s statement “puts a July cut squarely in focus,” but point out that past BoC language has used the word “gradual” to describe the likely trajectory this year.
They argue that another 50 basis points of cuts are “appropriate” this year and more in line with that tone, contrary to the “more aggressive” median expectation of 75 basis points.
“Three more cuts over the last four decisions of the year isn’t a pace of cuts we would characterize as gradual and isn't as likely to materialize barring a more material slowdown in the economy.”
John MacFarlane
When and how many? Where economists stand on future cuts
Economists at most of Canada’s major banks reacted quickly to the BoC cut, offering various interpretations of the language in the announcement and implications for future interest rate moves.
Here’s a round-up:
Douglas Porter, chief economist, BMO Financial Group
On a July 24 cut: “If the inflation reports mimic the very mild results seen so far this year, a cut is very much on the table for that decision as well.”
Forecast for 2024: “The key message from today is that they are going to take this on a meeting-by-meeting basis.”
James Orlando, director and senior economist, TD
On a July 24 cut: “We expect the BoC is on a cut-pause-cut path, with the next cut likely occurring in September.”
Forecast for 2024: “We believe that the path forward for the BoC is going to be slow.”
Andrew Grantham, senior economist, CIBC
On a July 24 cut: “We continue to forecast a further 25bp reduction at the next meeting in July.”
Forecast for 2024: “We forecast three more cuts before the end of the year, with the policy rate finishing 2024 at 4.0%.”
Claire Fan, economist, Royal Bank of Canada
On a July 24 cut: “Our own base case assumes another 25 basis point cut in July.”
Forecast for 2024: “There will be three more rate cuts this year to lower the overnight rate to a still restrictive four per cent by the end of 2024.”
Randall Bartlett, senior director of Canadian economics, Desjardins
Forecast for 2024: “How many rate cuts and how quickly they come will depend heavily on the data continuing to cooperate.”
Taylor Schleich and Warren Lovely, economists, National Bank
On a July 24 cut: “We’d be inclined to bet they will ease again at the next meeting.”
Forecast for 2024: “Three more cuts over the last four decisions of the year isn’t a pace of cuts we would characterize as gradual and isn't as likely to materialize barring a more material slowdown in the economy.”
John MacFarlane
TD expects Bank of Canada will move slowly from here
While the Bank of Canada has “acknowledged that the economy doesn't need such high interest rates any longer,” TD Economics senior economist James Orlando expects the bank “will proceed cautiously” going forward.
“It must ensure that inflationary pressures don't rebound like they have in the U.S. in recent months,” he wrote. “It also doesn't want to reignite the housing market, where prospective buyers have been waiting for greater interest rate certainty.”
Orlando suspects the BoC “is on a cut-pause-cut path, with the next cut likely occurring in September.”
One consequence of that progression, he said, is further divergence from the U.S. Federal Reserve’s rate, “which is likely to put greater pressure on the loonie over the coming months.”
John MacFarlane
RBC hails ‘good news for Canadian households’ and expects 3 more cuts in 2024
Royal Bank of Canada economist Claire Fan says today’s Bank of Canada cut “leaves monetary policy firmly in ‘restrictive’ territory – the change in interest rates today is the equivalent of the central bank easing off the brakes rather than stepping on the gas.”
RBC still believes “there will be three more rate cuts this year to lower the overnight rate to a still restrictive 4% by the end of 2024,” with another cut coming in July, Fan wrote in a note after the central bank's rate announcement.
Today’s decision “spells good news for Canadian households that have been contending with elevated borrowing costs,” Fan wrote. But, even with three more cuts bringing the benchmark rate to a four per cent, monetary policy “will still be at levels the BoC views as ‘restrictive.’”
John MacFarlane
Vanguard Canada looking for 1 or 2 more cuts in 2024
Today’s Bank of Canada rate cut aligned with expectations at investment firm Vanguard Canada, saysRoger Aliaga-Diaz, the company’s chief economist for the Americas and global head of portfolio construction.
“The rate cut could help GDP growth come back to the trend sooner,” Aliaga-Diaz said in an email to YahooFinance Canada. “As inflation continues to decelerate, growth sustainability will likely become more important.”
Vanguard expects 2024 growth to come within the 1.25 to 1.5 per cent range, he says, and they “anticipate one or two additional rate cuts this year.”
John MacFarlane
Macklem reveals his NHL hopes
Governor Tiff Macklem weighed in on who he'll be cheering for in the Stanley Cup Finals. (AP Photo/Tony Gutierrez) (ASSOCIATED PRESS)
Pushed on a non-monetary policy question, Macklem didn't hesitate to name his pick for the Stanley Cup final.
"Let's hope the Oilers win the Stanley Cup," he quipped, without hesitation, when asked by a journalist. "Go Oilers!"
Alicja Siekierska
Macklem says 'soft landing' in sight
With growth resuming in the first quarter of the year, Macklem says the economy is on track for the sought-after “soft landing.” During his press conference on Wednesday, he also pointed to a strengthening of consumption growth, business investing picking up, and a slight pick-up in the housing market.
“So far it is looking like a soft landing [but] the plane hasn’t been landed yet. So we’re not cheering yet, but I would say the runway is in sight. But we still need to land this,” Macklem said.
John MacFarlane
'Dovish tone' suggests today's cut likely first in a series: BMO
Bank of Montreal (BMO) Capital Markets chief economist Douglas Porter writes that “the overall tone” of the Bank of Canada’s announcement was “constructive for further cuts.”
BMO had expected cuts every other month ahead of today’s announcement. However, Porter says the announcement’s “dovish tone” suggests that if CPI and jobs data ahead of the BoC’s next announcement on July 24 remain “very mild,” then “a cut is very much on the table for that decision as well.”
“The first cut may not necessarily be the deepest, but it is the most significant, as it marks the official turning point after more than two years of restrictive policy.This is indeed likely to be the first of a series of cuts, although that series is not going to be a straight line down by any means. The Bank's tone is a bit more dovish than expected, but each and every cut this year will require evidence that inflation is calming.”
John MacFarlane
'Let's just enjoy the moment': Macklem
Bank of Canada Governor Tiff Macklem’s response to a very expected question from media during the news conference drew considerable laughter for an economic event.
"If data continue to come in as expected, do you expect a rate cut in July?" asked a journalist.
Macklem replied: “I'll get to that going ahead, but let's … let's just enjoy the moment for a bit.”
John MacFarlane
Fed cut likely in September: Capital Economics
Beyond the Bank of Canada (BoC) rate cut, the other piece of a puzzle that can affect the loonie and the Canadian economy more broadly is future decisions by the Federal Reserve, with much being made of a potential divergence in interest rates.
So when is the Fed likely to cut? In a note today, Stephen Brown, deputy chief North America economist at Capital Economics, notes there is “no prospect” of a U.S. rate change next week.
Analysts are leaning towards “one or two interest rate cuts this year, with a single cut the marginally more likely median,” Brown writes.
Brown expects signs of economic weakness in the U.S. will lead to movement by end of summer. “As inflation falls a bit faster than officials expect and GDP growth disappoints, our base case remains that the Fed will cut in September.”
John MacFarlane
Get ready for ‘more active’ real estate market: Broker
Today's Bank of Canada rate cut could nudge buyers off the sidelines. (R.J. Johnston/Toronto Star via Getty Images) (Toronto Star via Getty Images)
The Bank of Canada rate cut should mean lower mortgage rates and a “nudge” buyers need to get back into the market, John Lusink, president of Right at Home Realty, writes in a note today.
“This rate cut is the green light homebuyers have been waiting for, and it's a win-win for both buyers and sellers, setting the stage for a dynamic and competitive market,” Lusink writes.
'Dovish tone': Expect another cut in July, two more after that by year end, says CIBC
Andrew Grantham, senior economist at CIBC Capital Markets, writes that “a perceived dovish tone” in the Bank of Canada announcement “suggests the likelihood of a greater number of follow-up moves.”
The 25 basis point cut came “as expected,” he writes, with economic indicators meaning “ there wasn't a good excuse to not begin the process of moving rates lower today.”
"The opening statement for the press conference noted that it would be ‘reasonable’ to expect further rate cuts if inflation continues to ease, although it also reminded investors that decisions would be taken ‘one meeting at a time.’"
“Financial markets had mostly priced in today's cut to the overnight rate beforehand, but long rates and the Canadian dollar still moved lower on the news as a perceived dovish tone suggests the likelihood of a greater number of follow up moves. We continue to forecast a further 25bp reduction at the next meeting in July, and a total of four cuts (three more after today's) by the end of the year."
John MacFarlane
TSX up slightly in Wednesday trading
The S&P/TSX Composite opened green Wednesday morning and inched higher after the Bank of Canada's rate announcement. As of 10:12 a.m. ET the index was at 22083.34, a gain of about 0.5 per cent from yesterday’s close.
Alicja Siekierska
Key quotes from Governor Macklem’s prepared remarks
On economic growth:
“After stalling in the second half of last year, economic growth picked up in the first quarter of the year. At 1.7 per cent, growth was lower than projected in the April report. But consumption growth was solid at about 3 per cent, and business investment and housing activity also increased.”
On the labour market:
“Employment has been growing, but at a slower pace than the working-age population. This has allowed the supply of workers to catch up with job vacancies. Elevated wage pressures look to be moderating gradually.”
On the remaining risks to inflation:
“Further progress in bringing down inflation is likely to be uneven and risks remain. Inflation could be higher if global tensions escalate, if house prices in Canada rise faster than expected, or if wage growth remains high relative to productivity.”
On what the Bank of Canada is watching going forward:
“In assessing where inflation is headed, we will continue to closely watch the evolution of core inflation. We remain focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
Alicja Siekierska
Housing market remains a risk to inflation
While Macklem said “we’ve come a long way in the fight against inflation”, he said there are still risks in bringing inflation down further.
“Further progress in bringing down inflation is likely to be uneven and risks remain,” Macklem said in his opening statement.
“Inflation could be higher if global tensions escalate, if house prices in Canada rise further than expected, or if wage growth remains high relative to productivity.”
John MacFarlane
Loonie drops following rate cut
The Canadian dollar weakened slightly against the U.S. dollar immediately following the Bank of Canada announced its interest rate cut, trading just above 1.37 per U.S. dollar.
So far the drop is well within the loonie’s range of the previous month. Some analysts predicted initial volatility would follow the BoC announcement. “We’re bracing for some whiplash price action," Karl Schamotta, chief market strategist at Corpay, wrote in a note ahead of the announcement.
Alicja Siekierska
Macklem doesn't close door to second rate cut in July
The Bank of Canada has kept the door open to another cut in July.
“If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2 per cent target continues to increase, it is reasonable to expect further cuts to our policy interest rate. But we are taking our interest rate decisions one meeting at a time,” Macklem said in his opening statement on Wednesday.
“We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made.”
Macklem said the Bank will closely watch core inflation, the balance between supply and demand in the economy, inflation expectations, wage growth and corporate pricing behaviour.
Alicja Siekierska
'We’ve come a long way in the fight against inflation'
The Bank of Canada cut its benchmark interest rate by 25 basis points on Wednesday, the first reduction in more than four years, bringing its policy rate to 4.75 per cent.
The decision was widely expected by economists and markets, which had priced in an 83 per cent probability of a cut on Wednesday, according to Reuters.
“We’ve come a long way in the fight against inflation. And our confidence that inflation will continue to move closer to the 2 per cent target has increased over recent months,” Bank of Canada Governor Tiff Macklem said in a prepared opening statement.
“And with further and more sustained evidence that underlying inflation is easing, monetary policy no longer needs to be as restrictive. In other words, it is appropriate to lower our policy interest rate.”
The cut comes as inflation has cooled, easing from 3.4 per cent in December to 2.7 per cent in April. The central bank’s closely watched measures of core inflation have also eased, falling below 3 per cent in April. At the same time, economic growth in the first quarter was slower than the Bank had forecast. The labour market has also been growing at a slower pace than population, and the central bank said wage pressures appear to be moderating gradually.
The cut marks a turning point in one of the most aggressive tightening cycles in the Bank of Canada’s history. Since March 2022, the bank hiked its benchmark rate by 475 basis points to 5 per cent.
Macklem has previously said that cutting rates too early or too fast could jeopardize the progress the Bank has made in lowering inflation. On Wednesday he said that if inflation continues sustainably to the central bank’s 2 per cent target, “it is reasonable to expect further cuts to our policy interest rate.”
“But we are taking our interest rate decisions one meeting at a time,” he said.
“We don’t want monetary policy to be more restrictive than it needs to be to get inflation back to target. But if we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made.”
BANK OF CANADA CUTS BENCHMARK OVERNIGHT RATE BY 25 BPS TO 4.75%
John MacFarlane
Analysts forecast only slightly weaker loonie
Foreign exchange analysts expect a rate cut today and divergence from the U.S. Federal Reserve would slightly weaken the Canadian dollar in the short term and in the next year, according to the latest Reuters poll.
The median forecast of 40 analysts in the poll, conducted from May 31 to June 4, is for the loonie to reach 1.37 per U.S. dollar. Last month the median forecast was 1.36.
In a year, the analysts’ median prediction is for the loonie to make a 2.5 per cent gain to 1.33. A month ago, the median forecast was 1.32 cents
John MacFarlane
A cut today would be ‘a massive communication misstep’: Holt
Scotiabank is in the minority of market forecasters who believe the Bank of Canada will hold rates steady, and Derek Holt, vice-president and head of capital markets economics has pushed forcefully against a cut.
In a morning note today, Holt argues that a cut would contradict BoC Governor Tiff Macklem’s consistent messaging “saying they want to see a period of low inflation, then have the confidence that it will be sustained, and only then begin a discussion on when to cut and that they require 'months' of further evidence.”
A cut today, Holt writes, would be counter to Macklem’s language in early May and also contradict the BoC’s statement in April. Year-over-year inflation has dropped only 0.1 per cent since the April statement, Holt notes, when the BoC qualified the 2.7 per cent inflation rate as “still too high.”
”If it was still too high then and therefore they hadn’t arrived at the point of judging it to be sustained, then why would they be cutting now?” Holt asks.
In a previous note, Holt argued that Canada’s economy is stronger than many suggest, and that a rate cut now could reignite inflationary pressures, especially in housing.
John MacFarlane
High interest rates have led many Canadians to delay major purchases
In a recent consumer sentiment survey by Dye & Durham, a legal software firm headquartered in Toronto, 38 per cent of respondents say they’ve held back on a big-ticket item because interest rates are high.
A new car, a new home or a major renovation project topped the respondents' list of planned purchases if interest rates drop. But for most of them, a single rate cut won’t be enough.
Only 4 per cent of respondents say they intend to make a purchase immediately after a rate cut is issued, while 14 per cent say they’d wait for “a few” cuts, and 18 per cent want to see “significant” cuts before opening their wallets.
“That measured sentiment, along with the likelihood that rate cuts will be made gradually by the Bank of Canada, leads us to believe that while people will see the first cut as a turning point, the return to elevated levels of spending will not be immediately drastic and will be less likely to trigger more inflationary pressure,” Martha Vallance, Dye & Durham’s chief operating officer, said in an email to Yahoo Finance Canada.
John MacFarlane
Brace for ‘whiplash price action’ on loonie, with a future ‘volatility bomb’: Schamotta
Today's Bank of Canada (BoC) rate decision offers two different ways the Canadian dollar could go for a short, wild ride, a foreign exchange analyst says.
The dollar hasn’t moved significantly this morning, Karl Schamotta, chief market strategist at Corpay, wrote in a note, but “we’re bracing for some whiplash price action.”
Should the BoC cut, Schamotta writes, “we strongly believe they’ll work to deliver a more hawkish set of accompanying communications that explicitly emphasizes upside growth and inflation risks. The Canadian dollar could tumble and quickly reverse as the likelihood of a rapid-fire easing cycle falls.”
If the BoC chooses to hold the overnight rate at 5 per cent, the announcement “should be couched in language that clearly telegraphs a July move. In such an event, the loonie might snap higher, only to reverse once traders have examined the statement and the guidance provided during the post-decision press conference.”
Schamotta notes that the loonie has been trading in “a remarkably tight range” for two years, in spite of heavy scrutiny of every economic factor, leaving currency hedgers "lulled to sleep." Schamotta worries this period of calm will mean “the next volatility bomb will catch markets largely unawares.”
Alicja Siekierska
Bank of Canada and the Fed set to embark on separate paths
The Bank of Canada is widely expected to cut rates today, which will put it on a diverging path from the Federal Reserve. Inflationary pressures remain in parts of the U.S. economy, while Canada has seen inflation slow and the broader economy stall.
“Below-trend growth in Canada should make the Bank of Canada confident that it has inflation under control,” TD economist James Orlando wrote in a note. “The Fed, however, does not have this luxury.”
So how far can the Bank of Canada separate from its U.S. counterpart? According to economists, Canada’s central bank could cut its benchmark rate up to three times before the Fed makes a move. A divergence could also mean a weaker loonie ahead.
What a rate cut would mean for the housing market – and your mortgage
When the Bank of Canada announced a “conditional pause” on rate hikes last year, it was enough to spark a surge in activity in the Canadian housing market.
What will happen to the housing market if the central bank cuts rates today remains to be seen, but some expect that it could be the push that brings some home buyers off the sidelines.
“Once the central bank does make a move, and that first highly anticipated cut to rates is made, even if it is only by 25 basis points, I expect we will see the price appreciation curve steepen upwards when the highly rate-focused crowd jumps into the market,” Royal LePage CEO Phil Soper said in a statement.
Borrowers will also be keeping a close eye on the Bank of Canada’s decision, particularly those with variable-rate mortgages or home equity lines of credit. According to Ratehub.ca’s mortgage payment calculator, a homeowner with a mortgage of around $650,000 with a five-year variable rate of 5.95 per cent amortized over 25 years would see their monthly mortgage payment decrease by $96 per month (from $4,157 to $4,061) if the Bank of Canada cuts by 25 basis points.
“Anyone with a variable-rate mortgage or home equity line of credit will be watching this announcement closely to see if they can finally get some rate relief," James Laird, co-CEO of Ratehub.ca, said in a statement.
“Fixed rates will likely remain unchanged regardless of whether the Bank cuts or not, since rate cuts are already priced into the current bond market.”
Alicja Siekierska
Why some economists are betting on a July – not June – cut
While market bets are leaning into a June cut, there are some economists who believe the Bank of Canada should remain on the sidelines until July.
Six of 29 economists polled by Reuters say the central bank should wait until its July 24 meeting to cut interest rates, including ones from TD Bank, Scotiabank and National Bank.
Economists say the main question is whether four months of improved inflation data are enough to reassure the central bank that the dip is not a blip.
“(The) first move is an important one, even if only symbolically. Holding off one more meeting will mean two additional reads on prices. That may be what policymakers want/need to see to have sufficient confidence that the inflation impulse really has been extinguished,” National Bank rate strategists Warren Lovely and Taylor Schleich wrote in a note last week.
Some also argue Governor Tiff Macklem hasn’t explicitly signalled an intention to cut.
“In an effort to increase transparency and forward guidance, the Bank can use next week to tee up a July rate cut, while allowing itself to see two more inflation prints to confirm that durable 2 per cent price growth is in sight,” TD economist Marc Ercolao wrote last week.
Alicja Siekierska
What is core inflation and why does it matter so much to the Bank of Canada?
In recent months, Bank of Canada Governor Tiff Macklem has repeatedlyhighlighted core inflation as one of the key measures that will influence when the central bank decides to cut its benchmark interest rate.
There are several measures of core inflation that seek to strip out volatile components of CPI to, as the Bank of Canada says, “better reflect the underlying trend of inflation.” Those measures include CPI-median, which the Bank says helps filter out extreme price movements of certain components, and CPI-trim, which removes 40 per cent of the total CPI basket (20 per cent from the bottom in terms of price variations, and 20 per cent from the top.)
“The reason we care about core inflation is because by stripping out the volatile components of CPI inflation, it gives you a sense of where CPI inflation is likely to settle,” Macklem said in a press conference in March.
“But there are things like gasoline prices that fluctuate quite a bit, go up and down. So we're trying to see through those to see where the underlying… trend is.”
The Bank received some good news with April’s CPI data. Measures of core inflation dipped below 3 per cent, within the central bank’s target range of between 1 and 3 per cent.
John MacFarlane
Here's a refresher on what the Bank of Canada is trying to do
Moshe Lander, a senior lecturer in economics at Concordia University, says the Bank of Canada’s goal is exceedingly simple: Keep inflation low.
“So whatever the interest rate that's necessary to achieve its mandated goal is essentially what it's going to do,” he said. “It's agnostic about what that number needs to be.”
The BoC’s official mandate is “to promote the economic and financial welfare of Canada.” To do so, it has four core functions. Three of those are largely administrative: Making and distributing currency, keeping the financial system safe, and managing the federal government’s debt and foreign exchange reserves.
However, it’s the first function that affects the economy and that everyone pays attention to: Maintaining a monetary policy framework that “aims to keep inflation low, stable and predictable.”
In some other countries, governments have given their central banks a dual mandate, where in addition to inflation, they must also consider economic growth. The Federal Reserve, for example, also has a goal of “maximum employment.”
The most recent renewal of Ottawa’s agreement with the BoC, from December 2021, also includes language about maximum employment, but stops short of making it a formal mandate, emphasizing that “the primary objective of monetary policy is to maintain low, stable inflation over time.”
Alicja Siekierska
A rate cut could provide some relief for borrowers – and bank stocks
A June rate cut could give some much-needed relief to borrowers, which in turn could help Canada’s biggest banks.
“What the rate cuts will mean for the economic outlook is much more positive,” Jefferies analyst John Aiken told Bloomberg in an interview. “Given the Canadian banks are beta play on the Canadian economy, anything that helps the Canadian economy will be beneficial to their bottom line.”
Bank stocks could use a lift these days. The S&P/TSX Bank index is up 0.7 per cent this year, compared to a 6 per cent gain for the broader index.
A Bank of Canada cut today would be the first by a G7 central bank in more than 4 years
If the Bank of Canada cuts interest rates later this morning, it will be the first central bank in the G7 to do so in more than four years.
The central banks in Canada, the United Kingdom and the United States, as well as the European Central Bank (ECB), have progressively pushed up rates, mostly starting around the summer of 2022 in response to a jump in inflation due to the COVID-19 pandemic. The ECB sets monetary policy for countries in the eurozone, including G7 members France, Germany and Italy.
The BoC’s current benchmark rate of 5 per cent is below the 5.5 per cent rate in the U.S. and 5.25 per cent in the U.K., and 100 basis points higher than the ECB’s deposit rate of 4 per cent. The ECB’s next rate announcement is Thursday, with markets anticipating a cut.
Japan is an outlier among the G7 nations, with ultra-low interest rates the norm for nearly 30 years in response to chronic deflation. The Bank of Japan raised its rate to 0.1 per cent in March, up from a rate of minus 0.1 per cent that had held since 2016. It was the country’s first rate increase in 17 years.
Let’s try doing a little thought experiment. Imagine that, 20 years ago, you bumped your head and slipped into a coma – and have only now, in June 2024, regained consciousness. Naturally, you’re eager to check the news and find out what’s going on in the world. So, after a member of your family has lent you his or her iPad – and explained to you what it is and how to use it – you rush to visit The Telegraph website. And, at the top of the homepage, the very first headline you see reads as follow
While Russian forces continued their thrust towards Kharkiv over the weekend, world leaders descended on the Swiss resort of Bürgenstock in attempts to work out what a peace deal should look like. Vladimir Putin, predictably, had no interest in attending, but the absence of another world leader was more significant. Even as the US gears up to pivot its military attention to the Indo-Pacific to confront an increasingly assertive China, Xi Jinping chose not to attend.
It has become trite to say that the world is now more dangerous than it has been since the end of the Cold War – or perhaps even the end of the Second World War. Trite but true.
David Cameron is back from outer space to tell us Nigel Farage wants to destroy the Conservative Party, that he’s playing “dog-whistle” politics and, we can infer, the Tories ought to run a mile from him. Thus the battle lines of the next leadership contest are drawn. Early advantage goes to elites who will say the party wandered too far to the Right – a view endorsed by a billion deadly dull podcasts made by people who think the Today programme is insufficiently subjective.
As Sir Keir Starmer and his Labour party move ever faster towards No 10, aided by the Conservative party’s penchant to fall on its sword with monotonous regularity, we will soon be forced to confront the nuclear-warhead-sized elephant in the room. Promises to grow the economy are all well and good, but the security of the country is of paramount importance, especially when our Russian enemy has made its hatred for us clear.
The rate-setting Monetary Policy Committee (MPC) left the door open for a June cut at its last meeting in May, but since then a number of data releases have pointed to stubborn inflationary pressures.
Why would anybody trust the Conservative Party to make the big decisions about the future of Britain, when they can’t even agree on what to do about Nigel Farage?
This FTSE 250 stock currently offers a huge yield. But with the company struggling, Edward Sheldon believes the dividend payout isn't sustainable. The post Glencore and Vodafone slashed their dividends. Could this FTSE 250 stock yielding 10% be next? appeared first on The Motley Fool UK.
After the underwhelming launches of the Conservative and Labour manifestos last week, Nigel Farage and Richard Tice produced a “contract” that has much to offer disillusioned supporters of either parties in the new leftist centre ground.
Ukraine’s military has spent the last two years chronically short of planes. Its prewar stocks were already small in number and mostly dated from the Soviet era. When NATO and other countries sent help, they focused on either sending the same older models or keeping existing aircraft in the air through maintenance and spare parts. Russia, meanwhile, has a larger and often more advanced air force.However, new planes are on the way to help Ukraine. For nearly a year, countries like the Netherlands
Former President Donald Trump commented on Ukrainian President Volodymyr Zelensky and the war in Ukraine while speaking at an event hosted by Turning Point Action in Michigan. William Cohen, Cohen Group CEO and former Secretary of Defense under President Bill Clinton, reacts to Trump’s speech.
Vladimir Putin has sacked four deputy defence ministers and appointed one of his relatives to the role as he carries out a sweeping purge of officials in charge during the botched invasion of Ukraine.
There are fewer than three weeks to go until polling day and, amid all the desperate campaigning and counter-campaigning, there is a dog that hasn’t barked – even though it is perhaps the most vital of all for our long-term survival.
Yahoo Finance 
