The last significant economic report before this
week’s Bank of Canada interest rate announcement is in. It effectively knocks down the last barrier
to a, much hoped for, rate cut.
Gross domestic product – the value of all
goods and services produced by the economy – for the 1st quarter of
this year grew by 1.7%. That is significantly
lower than the central bank’s forecast of 2.8% growth, and analyst projections
for a 2.2% increase.
GDP growth for the 4th quarter of
last year saw a major downgrade to 0.1% from 1.0%.
Statistics Canada’s GDP report builds on
several months of data showing inflation has fallen inside the Bank of Canada’s
target range of 1.0% to 3.0% for both the Consumer Price Index (headline
inflation) and core inflation, which is the Bank’s preferred measure.
It is widely accepted that the central bank’s
high interest rate policy has done what was needed to slow the economy,
allowing supply to catch up with demand.
There are reasons the Bank could hold off on a
rate cut until July:
- There has been no clear message from the
Bank that a cut is actually
coming.
- The Bank is still wary about mistakes it made
in implementing rate hikes,
that saw it lose control of inflation 2-and-a-half years ago.
- A fear that housing prices will spike as
rates drop could see the Bank delay
cuts until after the spring buying season.
- Currency concerns will likely keep the Bank
from cutting more aggressively
than the U.S. Federal Reserve.