Economist sees bounce in the loonie coming later this year
‘We could see a setback in Canada ’s inflation data’: BMO’s Sal Guatieri on what’s next for interest rates, the loonie and corporate profits
The other plus for the economy is, as you mentioned, interest rates are expected to decline and fairly soon. We expect the Bank of Canada to begin cutting rates in June and to reduce rates by a full 75 basis points this year and then another 125 basis points by the middle of 2026. There are two implications for the Bank of Canada. If the Bank of Canada cuts interest rates much more aggressively than the Fed, the Canadian dollar will weaken even further. There is a risk if the Canadian dollar weakens much further, that could delay rate cuts from the Bank of Canada or at least result in a much shallower course of easing than what we currently anticipate.
The bank has two favourite measures of core inflation. The first one is the CPI median, that’s basically your middle item in the consumer basket. Right now, the year-over-year rate is 2.8 per cent, and it’s coming down. And if you look at the increase in the last several months, it’s only been up 1/10 of a per cent. So at a three-month annualized rate that metric is only up 1.1 per cent. On a six-month basis, it’s up 2.2 per cent.
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