The Bank of Canada (BoC) is expected to cut interest rates in April, according to BofA Securities economist Carlos Capistran. The forecast comes despite Canadian inflation rising to 2.6% in February from 1.9% in January, driven by a 18.8% year-on-year surge in travel package prices. The rise was also affected by the end of the GST/HST on February 15, which increased the price of food and alcoholic beverages.
Despite the price pressures, gasoline prices rose at a slower pace, rising only 5.1% compared to 8.6% in January. The core Consumer Price Index (CPI), which excludes energy and food, also rose to 2.9% from 2.7%, beating expectations and signaling the potential for rising price pressures.
Capistran still expects the BoC to cut interest rates by 25 basis points at its April 16 monetary policy meeting, bringing the target rate to 2.50%. However, this decision depends on two key factors: the US retaliatory tariffs scheduled to take effect on April 2 and the March inflation report due on April 15.
If the US tariffs are implemented, they could weaken the Canadian economy and lower prices, increasing the chances of a larger rate cut. On the other hand, if inflation data continues to show a rise in core CPI, the BoC may take a “wait and see” approach before making any further decisions on interest rates.
