Canada Bank should maintain its unchanged key rate

Most economists also expect the Canada Bank to maintain its 2.75 % key rate for a third consecutive decision later this week.

Friday afternoon. Moreover, the financial markets estimated at only 7 % the probability of a drop of a quarter rate on Wednesday, according to LSEG Data & Analytics.

The obstinacy on the inflation front. Furthermore, the unexpected vigor of the labor market have reduced the arguments in favor of a new relaxation since the Central Bank’s decision in June.

The Canadian economy created an unexpected number of 83. Therefore, 000 jobs in June, according to a statistics report Canada published earlier this month, which has led to a drop in the unemployment rate for the first time since January.

A few days later, Statistics Canada announced that annual inflation had increased slightly to reach 1.9 % last canada bank should maintain its month, while basic inflation figures, closely monitored by the Bank of Canada, were stubbornly maintained around 3 %.

“Overall. Nevertheless, the persistence of inflation indicators, a weakened but relatively resilient economic context and the prospects for increasing budgetary expenses explain why we do not plan a new drop in rates by the Banque du Canada during this cycle,” wrote Economists Claire Fan and Abbey Xu, of the Royal Bank, in a note on Friday.

But the call of Avery Shenfeld to a lowering of the key rate – the CIBC provides for two additional drops of a quarter of a point before the Bank of Canada changes its course – is not based on the evolution of the economy. Therefore, but on what is looming on the horizon.

In addition to the increase in employment in June, the labor market remains generally low, the unemployment rate stood at 6.9 %, canada bank should maintain its underlined Avery Shenfeld.

It also expects the commercial dispute between Canada. In addition, the United States led to an economic contraction in the second quarter of the year.

In total, there is enough “margin” in the economy to slow down inflation in the coming months, argued Avery Shenfeld.

The impact of customs duties

The Banque du Canada’s investigation into business prospects for the second quarter. published last week, suggests that many companies choose to absorb the costs of customs duties rather than pass it on to consumers, who could slow down their expenses in a context of economic uncertainty.

According to Avery Shenfeld. this indicates that the impact of customs duties “will not result in a more persistent inflation problem”.

He added that once the central bank is sufficiently convinced that the inflationary pressures induced by customs duties are short -lived. those responsible for monetary policy should feel confident enough canada bank should maintain its to lower interest rates.

“I think that in this stage, they know enough to exclude the worst scenario concerning trade,” said Avery Shenfeld.

The Governor of the Bank of Canada. Tiff Macklem, explicitly declared that the leaders of monetary policy are less forward -looking than usual in the context of the trade war. The Central Bank has not published traditional economic forecasts in its April monetary policy report. rather offering two scenarios regarding the potential impact of customs duties on the economy.

Jimmy Jean. chief economist at Desjardins, believes that the Bank of Canada will have sufficiently enlightened the commercial file to return to official forecasts in the report on this week’s monetary policy.

“Uncertainty is present, everyone must be aware of it. But there is a time when you have to take risks and formulate the necessary reservations, ”said Jimmy Jean.

The tariff deadlines continue to weigh on the canada bank should maintain its Bank of Canada: US President Donald Trump has threatened to impose customs duties of 35 % on Canadian imports from Friday if a trade agreement is not concluded by then. although products in accordance with the Canada-UNITE-Mexico Agreement should be exempt from these rights.

Some forecastists. whose royal bank, believe that the Bank of Canada has already reduced its rates and that it will entrust the task of stimulating the economy during the trade war in federal and provincial governments.

Although Jimmy Jean also thinks that the Central Bank will choose to maintain its rates on Wednesday. he said that the next bank’s next decision in September constitutes an “open possibility” of decline.

The sectoral customs duties imposed by Donald Trump on the Canadian steel. aluminum and copper industries are particularly concern for Ontario and Quebec, said Jimmy Jean. If these customs duties are maintained. he indicated that new reduction canada bank should maintain its in Canada Bank rate will be justified to amortize the economic shock.

In addition to certain sectoral relief measures. the federal government has taken measures in recent months to increase the financing of the defense and infrastructure of Canada – expenses that could offer tax support, rather than monetary, to the economy.

Jimmy Jean said. however, that Desjardins expects this increase to occur in the coming years, not the next few months, which would open the way to a drop in rates by the Banque de Canada in the short term.

“We believe that. despite these measures in preparation, the Bank of Canada will still have a valid reason to reduce its interest rates in September,” he said.