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Inflation data in Canada is much more favorable for rate cuts compared to the USA. The first interest rate cut is expected in June, if not July. Following the initial cut, there will likely be a pause for one or two meetings to assess the situation, with subsequent cuts proceeding at a measured pace.
Canada's annual inflation rate was 2.9% in March, below the U.S.'s 3.5%. The Bank of Canada is seeing the right trends to begin lowering interest rates but wants to see these trends sustained longer.
Bank of Canada Governor Tiff Macklem noted that Canadian interest rates don't have to match U.S. or global rates, though there is a limit to how far they can diverge. "Our view is that the Bank of Canada can certainly cut one time without the Fed. They may even be able to cut two times as long as there is the expectation that the next move by the Fed will be to cut," Porter said. "I think that's about as far as the Bank of Canada can go without causing some serious stress on the Canadian dollar."
The Bank of Canada is widely expected to begin lowering its policy rate in the coming months, while forecasters expect the U.S. Federal Reserve to take longer.
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