Markets bet on second Bank of Canada interest rate cut coming this week
CTV
Economists and market watchers are betting the Bank of Canada will deliver another interest rate cut this week amid mounting evidence that inflation is sustainably easing.
Economists and market watchers are betting the Bank of Canada will deliver another interest rate cut this week amid mounting evidence that inflation is sustainably easing.
Expectations that the bank will lower its overnight lending rate when it makes its scheduled announcement Wednesday have been high since last week's release of the latest Statistics Canada inflation report, which showed annual inflation cooled to 2.7 per cent in June.
The inflation reading was less than the 2.8 per cent that markets had been expecting and has helped to build market confidence that the Bank of Canada may be poised for a second rate cut, on top of the 25-basis-point cut it announced last month.
"I think it's very likely the Bank of Canada cuts rates again next week. It wouldn't really make sense from a strategic point of view to only cut rates 25 basis points and then leave them there and see how the economy responds, because that wouldn't really cause a lot of change in the trajectory of the economy or inflation," said Royce Mendes, managing director and head of macro strategy at Desjardins.
"So it always made sense that the Bank of Canada was likely going to do at least two rate cuts in a row before pausing. And now recent data has reinforced that view."
Last month's interest rate cut, which reduced the central bank's key rate from five to 4.75 per cent, was the first in more than four years.
In addition to the latest inflation report, Mendes said, recent data showing rising unemployment as well as subdued expectations for growth by Canadian businesses all support the prospect of another cut.
