MNI BoC Preview - June 2024: GDP Last Building Block for Rate Cut
Soft growth, inflation metrics give green light for first easing of the cycle
Executive Summary:
- While reservations remain, soft inflation & growth data make too compelling an argument for cuts
- GDP data provided final building block for June action over July
- Market and analyst consensus are far from unanimous. OIS markets price a ~80% likelihood of a 25bps rate cut (priced at ~65% before GDP), while 1/3 analysts surveyed expect no change in policy
Having been more divided over the viability of a June BoC rate cut, market consensus and pricing has begun to side with this week’s meeting as the start of the easing cycle, with a 25bps rate cut to 4.75% the most likely outcome. The sequence of softer-than-expected inflation prints has extended since the last decision, pointing to a further moderation of inflationary pressures and, likely, expectations.
However, we don’t expect a declaration of victory on inflation from the BoC this week. Any potential rate cut should be accompanied by clear communication that the pace of easing ahead will be gradual and measured in order to prevent an even wider gap between US and Canadian rates – and the implicit impacts on the exchange rate.