Unclear cut

When will the Bank of Canda announce its next rate cut?

The Bank of Canada (BoC) is set to make another important interest rate announcement later this month, yet it’s still uncertain what the country’s central bank will do given the very mixed bag of economic data that has rolled in since its decision in early June to cut interest rates for the first time in more than four years.

At odds, in particular, are stronger-than-expected Gross Domestic Product (GDP) and Consumer Price Index (CPI) readings for May that contrast with the more recent release of weaker-than-anticipated jobs numbers for June. The conflicting data has resulted in forecasters pricing the probability of a cut at 71%, with today’s CPI reading for June likely holding the key to the BoC’s ultimate decision.

Either way, the Canadian economy remains under a fair amount of pressure due to elevated rates and the Bank of Canada seems likely to cut rates at least two more times before the end of 2024. This could alleviate some of the consumer stress being felt on mortgage renewals, as well as on other areas of unsecured lending and on the consumer spending and retail sales front. While the expected cuts may only be minor in nature at 25 basis points each, they should still help the economy at the margins – especially given the country’s continued struggles versus most other developed market economies.

If more rate cuts are to be expected, we believe cyclical and interest-rate-sensitive sectors could be beneficiaries. In fact, commodity-heavy sectors such as Materials and Energy rallied sharply after the first BoC rate cut in June and interest-rate-sensitive sectors like Utilities and REITs may be set to follow suit after a long period of underperformance due to the rapid rise in interest rates over the past few years.

Mike Archibald, CFA®, CMT, CAIA, is Vice President and Portfolio Manager at AGF Management Ltd. He is a regular contributor to AGF Perspectives.

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Commentary and data sourced Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of April 16, 2024, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained herein. Investors are expected to obtain professional investment advice.

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