No rate change today, focus remains on quantitative tightening

The global economy continues to slow and inflation continues to ease across most economies. Growth in the US has been stronger than anticipated, but it’s expected to slow in 2024. The Bank of Canada (BoC) currently forecasts global GDP growth of 2.5% in 2024 and 2.75% in 2025. Inflation is expected to continue easing in the majority of advanced economies and is currently expected to reach central bank target rates in 2025.

CIBC Capital Markets confirms the hold today was expected as the BoC isn’t ready, willing or able to start interest rate relief just yet. However, the BoC hinted lower rates are on the horizon later this year. CIBC Capital Markets expects Canadians to see the first rate cut in June, with as much as 150 basis points (bps) of cuts on tap throughout the year to help get the economy moving again after its current state of stall. For more details, visit CIBC Capital Markets Opens in a new window..

CIBC Capital Markets notes today’s BoC statement dropped the earlier reference to a potential need to hike interest rates if inflation failed to cool — changing the outlook to a less hawkish comment as the BoC reiterated it remains concerned about persistent core inflation. In today’s announcement, the message shifted from a discussion of whether rates are high enough to one about how long the BoC needs to keep interest rates at 5%.

Aaron Young, Vice-President, Global Fixed Income at CIBC Asset Management confirms in its statement today, the BoC made somewhat explicit expectations that further rate hikes are not in the cards at this time. “The BoC is trying to walk the fine line between telegraphing to markets that further tightening is not expected without inadvertently undoing all the impact that higher rates have had on taming inflation.”

Mr. Young says, “In our view, rate cuts are a second half of 2024 story as certain elements of inflation remain stubbornly above target levels. Our portfolios are positioned for further curve steepening and taking advantage of expected interest rate volatility in the months to come.”

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