Forecasters expect that this week's data will show Canada's CPI decline in April, but financial markets are still uncertain whether the Bank of Canada will cut interest rates in June. Canada's April CPI data will be released at 20:30 Beijing time on May 21. At 21:00 Beijing time on June 5, the Bank of Canada will hold a June interest rate decision.
Douglas Porter, chief economist at the Bank of Montreal (BMO), said he expects Canada's annual inflation rate to slow to 2.8% in April, slightly lower than 2.9% in March. He also expects the core inflation index, which excludes volatile prices, to drop slightly.
However, he said that the Bank of Canada may need to see lower levels of inflation to persuade it to cut interest rates in June.
Economists have always generally predicted that since the Canadian economy is clearly slowing down due to rising interest rates, the central bank will start lowering policy interest rates in June or July. But recent strong employment data has diverted expectations of interest rate cuts in June. This makes the upcoming inflation report particularly important for forecasters trying to solidify interest rate forecasts.
The fact that it may take longer for the Federal Reserve to start lowering policy interest rates also mitigates expectations that Canada will cut interest rates.
Porter said that the financial market currently believes that the possibility that the Bank of Canada will cut interest rates in June is about 40%.
The Bank of Canada's main interest rate is currently 5%, the highest level since 2001.
Meanwhile, some economists insist that interest rates will be cut in June.Royal Bank of Canada (RBC) economists wrote in a client report on Friday: “We believe that in the face of a weak economy and labor market, the Bank of Canada should cut interest rates by 25 basis points in June.”
The Royal Bank of Canada predicts that Canada's annual inflation rate will fall to 2.7% in April.
Royce Mendes, managing director of Desjardins and head of macro strategy, also predicted that Tuesday's inflation report will lay the foundation for interest rate cuts in a few weeks.
He said, “Judging from the indicators we are most closely watching, potential inflation is normalizing. We should see more evidence in the upcoming report. I think this will help the Bank of Canada cut interest rates in June, thus starting a cycle of interest rate cuts.”
USD/CAD daily chart
At 13:08 Beijing time on May 20, the USD/CAD report was 1.3601/03