Economic forecasts suggest that the Bank of Canada should probably lower its key rate with a quarter of a percentage point on Wednesday in the light of recent data on inflation and employment, bringing it to 3 %.
The decrease of a quarter of a point would mark a slowdown compared to the two previous decrees of large -scale central bank. It reduced its key rate of half a percentage in October and December, while inflation was or below its target by 2 %.
Canada’s annual inflation fell to 1.8 % in December, largely thanks to the temporary relief of the tax on products and services (TPS) granted by the federal government.
“(With) Inflation data, we have seen all the figures drop, so it’s a positive sign, observes you Nguyen, an economist at RSM Canada. We do not really expect a rise in inflation, and it is precisely in the target of 2 % at the moment, it therefore seems that the bank has enough room for maneuver to make another reduction. “
Statistics Canada said last week that shopping for restaurants and alcohol in stores contributed the most to the deceleration of overall inflation. Ottawa has established a temporary break of taxes on these articles in mid-December, as well as on other items, including children’s clothing and certain toys.
Without tax relief, the agency said that annual inflation would have been 2.3 %.
The price threat
Although higher basic inflation than expected and recent gross domestic product (GDP) can justify a freeze on the key rate, the United States’s pricing threat should cause a modest reduction, according to a Thomas Ryan report Capital Economics.
President Donald Trump announced last week that his threat of a universal price of 25 % on Canadian products could come true on February 1.
Mr. Ryan specifies that the markets anticipate a low probability of the status quo, the majority providing for a reduction of a quarter of a point.
“The major problem is the new president elected south of the border, who has repeatedly threatened to impose customs duties of 25 % on all Canadian imports,” said the economist, noting that a Such a measure would result in a drop in GDP of approximately 3 % and would trigger a recession.
“Even if he does not carry out his threats, such threats are likely to weigh heavily on business confidence this year. The bank will be very attentive to these risks at the next meeting and could feel a certain sense of urgency to act. ”
-Overall, the Bank of Canada has lowered its key rate five times in a row since last June.
However, Governor Tiff Macklem stressed last month that the bank would probably slow down the pace of discounts in the future.
The possibility of a trade war with the United States makes it unlikely that the bank extends its sequence sequence to seven when it will make its following decision in March, according to Ms. Nguyen.
“I think it is more than ever to the bank to slow down the pace and really make a decision one meeting at a time,” she explains. This is up to the degree of uncertainty that the Canadian economy is faced. The prices may make inflation again, and until there is more information on this subject, I think it is more prudent to simply slow down the pace of reductions. ”
The use at stake
Nguyen adds that the latest data on the employment of Statistics Canada also indicates the probability of a modest reduction this time.
The Canadian labor market created 91,000 jobs in December, the unemployment rate dropped by 0.1 percentage points to 6.7 %, according to the last survey on the active population.
The report also underlined the slowdown in wage growth, the average hourly wage that increased by 3.8 % over a year in December – the slowest growth since May 2022.
Ms. Nguyen says that wages growth in Canada has fueled the inflation of services, which means that the last decline indicates a slowdown in price growth.
The financial expert from Nerdwallet Canada, Shannon Terrell, applies that a “more measured” reduction of a quarter of percentage would be the most likely result of the announcement on Wednesday, but has not excluded a maintenance of rate.
“The December employment figures suggest that the country’s economic engine could find its place without the need for recovery measures,” she wrote in a statement. In addition, inflation having finally managed to get closer to the target of the bank, stable rates could help us to maintain the course and preserve the stability for which we have fought hard. ”
