Morning Market Brief: March 22, 2024

BoC rate cut looks likely this year

On Wednesday, the Bank of Canada (BoC) released the Summary of Deliberations from its meeting held on March 6. The notes made it clear the BoC intends to lower interest rates this year. This was consistent with other central banks this week, who are also looking for an opportunity to lower rates with inflation moderating and economic growth waning.?

• The BoC released the minutes from its last meeting, which showed officials believe rates could be lowered this year. Any rate cuts, however, will be based on the progress of inflation coming down and the health of Canada’s economy.
• Members of the BoC can’t come to an agreement on the potential timing of those interest-rate cuts. The BoC would like to see more evidence that inflation will indeed move back to its 2% target. Recent data shows Canada’s inflation rate at 2.8% in February, still above the BoC’s target. Core inflationary pressures remain elevated.
• BoC Governor Tiff Macklem noted the BoC doesn’t want to act too quickly and hinder the progress it has already made. Thus, the BoC is carefully considering the most opportune time to begin cutting interest rates. The benchmark overnight interest rate currently stands at 5.00%.
• The Bank of England (BoE) has taken much the same approach. The BoE yesterday announced it was holding steady at 5.25%, but comments suggest interest-rate cuts might be on the way. On Wednesday, the US Federal Reserve Board (Fed) announced it too was holding steady but expected three interest-rate cuts this year.

Inflation has come down substantially from the multi-decade highs reached in 2022, while economic growth has moderated, or even contracted, in several major economies. As a result, market participants are widely expecting rate cuts this year. The news from the BoC and Fed on Wednesday has helped lift equity markets in North America since. Equity markets could get a further boost as the picture about the timing and depth of rate cuts comes more into focus.

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