The Bank of Canada signalled that an interest rate cut in June of this year is on the table as inflation across the country continues to decline.
As was widely expected, the central bank kept its trendsetting overnight interest rate unchanged at 5%, its highest level in 22 years, at its latest policy meeting.
However, Bank of Canada Governor Tiff Macklem said that an interest rate cut this June is possible if inflation continues to trend lower in coming months.
Asked at a news conference whether a June rate cut was within the realm of possibilities, Macklem replied: “Yes.”
The comment was the clearest indication yet from Canada’s central bank that interest rate cuts are likely coming this year.
The Bank of Canada has held its overnight interest rate at 5% since July of last year.
Inflation across the country has declined from a peak of 8% in June 2022 to 2.8% currently. However, inflation remains above the central bank’s 2% annualized target.
Macklem said that higher gasoline prices would likely keep inflation in Canada around 3% in the second quarter before sliding closer to 2% by the end of 2025.
Markets in Canada place the odds of the first 25-basis point rate cut happening in June at 56%. The chance of a rate cut in July is currently priced in at 100%.
The Bank of Canada’s next decision on interest rates is scheduled for June 5.