The Bank of Canada held its policy rate steady for a sixth consecutive meeting, as officials signaled they’re getting closer to rate cuts but still need more evidence of slowing inflation.

Policymakers led by Governor Tiff Macklem left the benchmark overnight rate unchanged at five per cent on Wednesday. The hold was expected by markets and by economists in a Bloomberg survey.

“We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” Macklem said in his opening statement.

Economists surveyed by Bloomberg expect the bank will be in a position to cut at the bank’s June 5 decision. But traders in overnight swaps shifted their bets after a disappointing U.S. inflation reading and the Bank of Canada’s statement. The odds of a 25-basis-point cut in June are now close to a coin flip, compared with over two-thirds on Tuesday. July is fully priced.

While officials say inflation is still “too high,” data since January have boosted their confidence that price pressures are gradually slowing.

Still, Macklem called further declines in core inflation “very recent” and said policymakers want to be “assured this is not just a temporary dip.”

The communications confirm that officials’ discussions have turned to debating at what point this year the easing cycle can begin. But that decision will hinge on the pattern of inflation in the coming months.

Asked by reporters whether the bank could cut borrowing costs as early as June, Macklem said: “Yes, it’s within the realm of possibilities,” but policymakers want to see more progress on cooling price pressures.

“Overall, the statement is in line with a central bank moving slowly towards lowering interest rates, and sustained downward momentum in core inflation within the next CPI print will be key in determining whether than process can start at the next meeting in June,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.

Stephen Brown of Capital Economics said Macklem’s comment about needing to see inflation progress for “longer” may be interpreted in different ways. But the central bank seems open to a June rate cut if month-over-month changes in core prices remain muted over the next couple months, he said.

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“The biggest risk to that view may be developments south of the border, with the bank unlikely to be in a big rush to cut interest rates – and risk a depreciation of the loonie – if the recent stronger U.S. inflation data cause the Federal Reserve to start sounding more hawkish,” Brown said in a report to investors.

The Canadian dollar held losses after the release, trading near $1.369 per U.S. dollar, the lowest level since November. The yield on benchmark Canada two-year bonds rose after the U.S. inflation data and was up about 15 basis points on the day at 4.341 per cent.

In the news conference, Macklem said the bank will take any movement in the loonie into account as they set rates.

In the accompanying monetary policy report, officials said they expect the economy to grow 1.5 per cent in 2024, up from 0.8 per cent previously. They also boosted their outlook for potential growth, and said they expect “moderate excess supply” to persist until the end of 2024.

Policymakers see inflation falling to 2.2 per cent by the end of this year, a slightly faster deceleration than was previously expected, and officials continue to see inflation hitting the 2 per cent target in 2025. For the second quarter of this year, officials estimate inflation will come in at 2.9 per cent, largely held up by gasoline prices.

Officials also raised their estimate for the neutral rate — a theoretical level of borrowing costs that neither stimulates nor restricts the economy — by 25 basis points to a range of 2.25 to 3.25 per cent. In the press conference, Macklem said the change doesn’t have “much of an influence on real-time monetary policy.”

Last month, members of the bank’s six-person governing council said they expect to be able to start cutting rates in 2024 as long as the economy and inflation evolve roughly in line with their forecasts. But there was little consensus about when or how officials would know it was time to start easing.


Policymakers boosted their first quarter growth estimate to 2.8 per cent annualized from 0.5 per cent.