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CIBC analysts suspect the Bank of Canada might pause interest rate changes this June, with key GDP data playing a decisive role.
What does this mean?
The Bank of Canada (BoC) is under scrutiny as CIBC analysts suggest that Canada's core inflation measures might support maintaining interest rates. The national output gap - estimated between -1% to 0% by the BoC - is too narrow according to CIBC, especially with a 6.9% unemployment rate and job losses in high-productivity sectors like vehicle assembly. With stagnant retail sales, declining household credit, and a steep drop in housing starts, the GDP appears weak, indicating a pause might be wise. Moreover, business investments are unstable, affected by reduced non-residential building permits and sluggish machinery investments due to weak oil prices. With the initial Q2 economic data unpromising, Governor Tiff Macklem might delay any rate cuts further into the summer.
Financial markets and investors eagerly await the release of GDP figures, which will shape Canada's monetary policy direction. Indicators of economic slack, including employment declines in March and April, cast doubt on near-term economic recovery. Investors should monitor upcoming economic data, as they reflect consumer sentiment and could affect sector-specific adjustments, especially in manufacturing and wholesaling.
The bigger picture: Economic vigilance in uncertain times.
Governor Tiff Macklem and the BoC face challenging conditions, with potential economic lethargy influenced by softening oil prices and tariff-related industry issues. The cautious approach prioritized on current data over anticipatory measures suggests policy shifts only if economic weaknesses significantly arise. As global and local economics intertwine, the BoC's decisions will embody a carefully measured response to maintain economic stability.