Economic stagnation prompts the Bank of Canada to plan a rate cut in June, contrasting with the US Federal Reserve's strategy
Canada's economic stagnation is likely to prompt the Bank of Canada to reduce interest rates in June, a move that would mark a notable departure from the US Federal Reserve's strategy, as reported by BNN Bloomberg.
This decision comes in response to recent economic data released by Statistics Canada, which indicated that Canada's economy showed no growth in March and only a 0.2 percent growth in February, a revision from the previously expected 0.3 percent.
Senior Economist Dylan Smith from Rosenberg Research expressed his disappointment in an interview with BNN Bloomberg, highlighting that the economy's performance fell well below the Bank of Canada's expectations.
“Not only did we see a revision to January, which was coming into the year looking quite strong, we've missed consensus in February, and it looks like we're flatlining in March,” said Smith. He projected that the growth for the analyzed quarter would likely be under one percent.
Tu Nguyen of RSM Canada observed that the Canadian economy has “little steam left” and anticipated an imminent rate cut by the Bank of Canada, contrasting with the Federal Reserve's likely delay until September.
She noted, “It is undeniable that the growth gap between the stagnating Canadian economy and a resilient US economy has widened.”
Geoff Phipps from Picton Mahoney Asset Management also foresees a divergence in monetary policies between the Bank of Canada and the Federal Reserve, driven by lower growth expectations and Canada's more rate-sensitive economy.
Smith reflected on historical trends where the Bank of Canada has previously diverged from the Fed due to specific domestic economic conditions.
He mentioned that current signs, such as a weakening Canadian dollar and more attractive domestic equities relative to the US, signal the potential for divergence.
As the Bank of Canada prepares for a potential rate cut, the impact on the economic landscape remains to be seen.
Smith emphasized the importance of monitoring the economic response to the initial rate cut, suggesting, “I think once that initial cut happens, there'll have to be a point where we look at what happens to relative financial conditions.”
The anticipated policy divergence could see the Bank of Canada implementing multiple rate cuts ahead of any action from the Federal Reserve, according to the economic trends and inflation trajectories outlined by the experts.
