The Bank of Canada’s next overnight rate announcement is June 5, with most market watchers not going out on a limb, saying the odds of a rate decrease are 50-50. The rate is currently at 5%.The biggest factor in the bank’s decisions is the rate of inflation, which Statistics Canada reports slowed to 2.7% in April, down from 2.9% in March. The bank’s preferred measures of core inflation, which eliminate food and energy prices, also continued to ease, with inflation slowing to 2.6% in April (from 3.1% in March) and CPI-trim falling to 2.9% from 3.2%. With four tame inflation reports in a row, some experts argue the bank can safely begin easing its benchmark interest rate on Wednesday. “There is really no debate that monetary policy is tight in Canada, and that it is now consistently weighing on underlying inflation,” said Douglas Porter Chief Economist at BMO Financial Group. “The key question for the (bank) is whether inflation has tamed sufficiently to now start reducing the degree of restrictiveness.” Porter added, with April’s soft inflation readings, “the door is open” for a rate cut but that it remains a “close call.” TD Economics' Leslie Preston agrees with Porter, adding that while the bank’s preferred inflation rate, a range between 1% and 3%, was reached for the first time in nearly three years, “At 2.8% it is still close to the top of the (bank's) range.” “We expect the bank will want to see a bit more confirmation before taking rates lower and lean towards a July cut,” she said. Bond markets are seeing roughly 53% odds of a .25% cut, up slightly from prior to the inflation data release. Odds of a quarter-point rate cut in July are around 72%. It will be a big announcement, says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. “Experts are split on whether we will see our first rate cut in over four years next week," says Laird. “Those who don’t think the bank will cut next week think that it will happen in the July announcement.” “If we do get our first rate cut next week, it will be interesting to see if heat returns to the real estate markets across the country or perhaps a quarter point cut will not be enough to fuel the fire.” “With most real estate markets are balanced and some in buyers’ markets, those shopping for a home should decide whether they should attempt to find something ahead of this potential first rate cut.” A rate cut will have a positive effect on homeowners with variable rate mortgages or a home equity line of credit. “(They) will be watching this announcement closely to see if they can finally get some rate relief,” says Laird. “Fixed rates will likely remain unchanged regardless of whether the bank cuts or not, since rate cuts are already priced into the current bond market.” Canadian Mortgage Professional reports expectations for lower borrowing costs are building, but “it will take as long as three quarters for interest-rate cuts to really bear fruit for bank customers,” according to a Bank of Nova Scotia executive. “There’s some talk about rate decreases in June and July,” said Scotiabank Chief Risk Officer Phil Thomas. “I’m of the opinion that even with those decreases in June and July, it’ll take a few quarters, maybe one, two, three quarters, for it to start to really support the Canadian consumer.” “Homeowners with variable-rate mortgages have been hit particularly hard by rising borrowing costs over the past two years and will enjoy only moderate monthly savings at first.” “For clients in Vancouver and Toronto a 25-basis-point rate cut will lead to an average decrease of $100 month on their mortgage payments.”
