Meanwhile, analysts see a preparatory move for future cuts
Bank of Canada governor Tiff Macklem underscored the need for caution in the central bank’s approach after it kept its benchmark interest rate unchanged for a fifth consecutive announcement yesterday.
Macklem said that while recent data on inflation align with expectations, the path towards the bank's 2% target is expected to be slow and filled with potential risks.
"It's still too early to consider lowering the policy interest rate," Macklem said, pointing out the need for more consistent signs of easing in core inflation.
The central bank's communication suggests a vigilant stance towards persistent inflationary pressures, noting that core inflation rates continue to hover above desirable levels. Analysts, such as Kyle Chapman from the Ballinger Group, interpret the bank's message as a strong indication that rate cuts in the near future are unlikely: "The statement read more hawkish than last month.”
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Despite a reduction in inflation to 2.9% annually in January, the BoC stressed the importance of sustained declines in core inflation before considering rate adjustments. This stance has led financial markets to adjust their expectations, with the likelihood of a rate cut in April dropping significantly.
Macklem emphasized the central bank's careful approach to rate changes, suggesting that any future rate cuts would not mirror the rapid pace of previous rate hikes. The focus remains on a broad array of economic indicators to gauge the effectiveness of current monetary policy in alleviating inflation.
Meanwhile, economists like Randall Bartlett from Desjardins and Avery Shenfeld from CIBC are interpreting the Bank's current position as a preparatory phase, potentially setting the stage for rate cuts later in the year. In particular, Shenfeld maintains the prediction for a rate cut by June, contingent on further evidence of inflation and wage control.
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