February 29, 2024
One investment strategist says the Bank of Canada may be more aggressive with interest rate cuts than what many market participants are expecting.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab, said in an interview with BNN Bloomberg Tuesday that inflation may soon fall below the central bank’s two per cent target. As a result, he said rates could come down faster than some anticipate and characterized the Bank of Canada’s interest rate announcement in April as a “live meeting, so to speak.”
“I think there’s a 50-50 chance of a rate cut in April…the market’s pricing in maybe a 30 per cent chance. I think it’s a bit higher than that given this trajectory of inflation and given what we’ve seen in terms of the relatively lacklustre economic backdrop,” Kleintop said.
“Canada is very tied to the global manufacturing supply chain, (a) very resource-dependent economy. We’ve seen a lot of weakness there, both in China and around the world.”
Kleintop said he is basing his predictions on the figures from the Canadian Manufacturing Purchasing Managers Index, which he said can indicate where inflation might settle in the future. He said the index includes a component where business leaders provide pricing information, which “tends to lead consumer prices by about six months.”
According to Kleintop, figures from the index suggest inflation may reach “below the Bank of Canada’s two per cent target very soon, perhaps resulting in a more aggressive path for cuts to the market currently anticipates.”
January’s inflation figures
Canada’s inflation rate ticked lower in January, falling further than expected amid declining gasoline, airfare and clothing prices. The annual rate of inflation fell to 2.9 per cent in January, from 3.4 per cent a month earlier.
Following Canada’s latest inflation figures, James Orlando, director and senior economist at TD Economics, said in a report last week that the Bank of Canada should alter its inflation approach, due to the outsized impact housing is having on inflation.
He said more than half of Canada’s total inflation comes from shelter costs and is now the “single biggest factor” preventing the central bank from achieving its two per cent inflation target.
