(Bloomberg) -- The Bank of Canada is likely to leave interest rates unchanged and avoid signaling that cuts are imminent, as officials continue to assess the right moment to launch into easier monetary policy.

Markets and economists expect policymakers led by Governor Tiff Macklem to hold the benchmark overnight rate at 5% for a sixth straight meeting on Wednesday. Officials will probably keep their message neutral, while reiterating a cautious optimism that they should be able to start lowering borrowing costs sometime this year.

That can only happen if inflation continues to slow — and it’s already decelerating faster than the bank anticipated at the start of the year, hitting 2.8% in February. But the economy is doing better than expected, and there’s still uncertainty about when the consumer price index will return to 2%, the bank’s target.

“We expect the wording of the policy statement to leave options open for how long it plans to leave interest rates at current levels before pivoting to cuts,” Nathan Janzen and Carrie Freestone, economists at Royal Bank of Canada, wrote in a report to investors.

Last month, members of the bank’s six-person governing council said they expect they’ll 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 no consensus about when or how officials would know it was time to start easing.

Economists surveyed by Bloomberg think the bank will be in a position to cut on June 5. Traders in overnight swaps place over two-thirds odds of a 25-basis-point cut at that meeting. July is fully priced.

“They’ll want to make sure that the output gap stays closed after a couple of months of stronger economic activity,” Citigroup economist Veronica Clark said in an interview. “They don’t have the confidence yet on exact timing of when they would be cutting.”

Economic growth in the first quarter is tracking faster than the 0.5% annualized pace forecast by the bank in its January monetary policy report. New forecasts are coming Wednesday, and officials will likely have to raise their estimates for growth.

Still, the economy’s sensitivity to interest rates is clearer now. Higher borrowing costs are working to cool consumer spending. Families that took out adjustable-rate mortgages when rates were at a bottom are feeling especially squeezed. The country’s labor market is also loosening, with the unemployment rate rising 1.1 percentage points in less than a year.

Read More: Faulty Inflation Forecasts Hold Bank of Canada Back on Rate Cuts

Canada’s progress on inflation is starting to diverge from the US, which saw upside surprises to price pressures in January and February.

The Housing Factor

Cutting borrowing costs is likely to boost activity in the housing market — a big reason the bank will need to be more certain about its inflation forecasts before it takes that step. When Macklem declared a conditional pause to hikes at the beginning of last year, sales reignited and home prices rose for five months.

“The Federal Reserve has to deal with a stronger economy — the Bank of Canada has to deal with housing,” Benjamin Reitzes, macro strategist with the Bank of Montreal, said by email. “As much as you want to price in more cuts for Canada, there’s a limit to how far that’s going to go at the end of the day.”

On Wednesday, Bank of Canada officials are also likely to shed light on how fast they think the economy can grow without triggering inflationary pressures. Last month, Senior Deputy Governor Carolyn Rogers declared poor productivity to be an emergency, and said it was limiting how much non-inflationary growth was possible.

Every April, officials provide an update on the neutral rate — a theoretical level of borrowing costs that neither stimulates nor restricts the economy. 

The bank currently says the range of the neutral rate is between 2% and 3%, but 63% of economists surveyed by Bloomberg said they expect policymakers to raise that estimate.

For Clark, a higher neutral rate would have more of an impact on the pace of monetary policy easing, rather than the timing of the first cut.

“If interest rates aren’t quite as restrictive, you can take your time a bit more,” she said.

--With assistance from Jay Zhao-Murray.

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