April 24, 2024, 02:08 PM

Desjardins With Quick Take on Bank of Canada 'Summary of Deliberations' For April

Desjardins has published Wednesday a quick take on the Bank of Canada's 'Summary of Deliberations' for April.

Canadian monetary policymakers, Desjardins noted, want to see more of the same before they begin reducing rates: According to the summary of their deliberations ahead of the April rate decision, officials agreed that they had seen the further easing in core inflation they had been looking for. However, policymakers ultimately concluded that they needed to see that progress sustained for a period of time before entering into a rate cutting cycle. Members of the Governing Council were split on when such conditions would materialize. A pickup in GDP growth during the first quarter had some officials seeing less downside risk to the economy. That said, others apparently placed more emphasis on the slowdown in inflation in concluding that the timing of rate cuts could come sooner rather than later.

Since the last Bank of Canada rate announcement, Desjardins noted, another inflation report was released showing further progress in taming underlying price pressures: As a result, Desjardins is sticking with its call that Canadian central bankers begin a rate cutting cycle in June. But Desjardins said it will be paying close attention to the upcoming CPI reading. It noted policymakers are also worried that any hints of easing monetary policy could result in a pickup in the real estate market that would further boost shelter inflation. "So far," Dejardins said, "there have been few, if any, signs of reacceleration in Canada's housing market. But data on that front should also be closely monitored."

Whenever the first rate cut occurs, Desjardins noted officials agreed that the easing cycle would be gradual: According to Desjardins, past rate cutting cycles have "often been fast and furious, with rapid easing required to offset a major shock to the economy". This time, it said, policymakers are not yet faced with a recession and need to balance the risk that inflation heats back up or gets stuck at an elevated level as rates fall. That's not the Desjardins base case projection. Its view remains that underlying inflation has made more progress than the central bank's preferred metrics indicate. Moreover, it added, the mortgage renewal wall will prove to be more of a drag on economic growth than is currently being assumed. That will likely place more downward pressure on consumer price growth than the Bank of Canada's April forecasts show. "So, while the comments contained in this summary of deliberations comes off as relatively balanced, our view is that the Bank of Canada will sound more dovish as the year progresses," Desjardins said.

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