The Bank of Canada is set to make a crucial interest rate decision on Wednesday, June 4th. Economists are divided on whether the central bank will hold rates steady at 2.75% or implement further cuts. The decision comes amidst mixed economic signals.
Canada’s economy grew faster than expected in the first quarter, with GDP expanding by 2.2% on an annualized basis. This growth was primarily driven by exports, as U.S. companies rushed to stockpile Canadian goods before tariffs took effect. However, the strong GDP numbers mask underlying weaknesses in the economy.
Consumer spending stalled and business investment fell in the first quarter. Additionally, the recent announcement of doubled tariffs on imported steel and aluminum could further dampen the economic outlook. Despite these concerns, core inflation remains near the upper end of the Bank of Canada’s 1-3% target range.
Crucial rate decision considerations
This, combined with the surprisingly resilient GDP growth, may provide justification for the central bank to hold rates steady for a second consecutive meeting. In a Reuters poll, over 75% of economists surveyed expect the Bank of Canada to maintain rates at 2.75% on Wednesday.
However, nearly three-quarters of the economists polled believe the central bank will cut rates at least twice more this year. Governor Tiff Macklem has previously warned of a possible growth slowdown in the coming quarters. The Bank of Canada will update its economic outlook in July, which could influence future rate decisions.
While April’s economic growth of 0.1% exceeded expectations, economists predict the economy will contract by 1.0% and 0.5% in the current and next quarters, respectively. If realized, this would meet the technical definition of a recession. As the Bank of Canada weighs the conflicting economic signals, the upcoming interest rate decision is being closely watched by financial experts and consumers alike.
The outcome could have significant implications for the Canadian economy in the months ahead.