One economist expects more dovish rhetoric from the Bank of Canada and an all-but-certain decision to hold interest rates at five per cent. 

Claire Fan, an economist at RBC, said in an interview with BNN Bloomberg on Tuesday that Wednesday’s announcement from the central bank is “expected to be a bit uneventful” and predicts a “clear hold” at five per cent. She added that over the last few meetings, the Bank of Canada has shifted progressively to more “dovish” messaging and believes that trend will continue. 

“The bank will probably continue to highlight data on (a) softening economic backdrop. That includes a softer print for GDP (gross domestic product), even though a positive but still the details were quite a lot weaker than what we had expected, alongside (a) persistently higher unemployment rate, barring a small tick lower in January,” Fan said.  

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“So that softening macro backdrop will likely be reiterated by the Bank of Canada as seen in the context of progress made to really get inflation lower.”

Bipan Rai, the global head of FX strategy at CIBC Capital Markets, said in an interview with BNN Bloomberg Tuesday that markets see some “residual risk” of an interest rate cut in April. However, he stated “the lion's share of the expectations fall towards the June date as the likely starting point for the Bank of Canada’s easing cycle.” 

David Dodge, a senior advisor at Bennett Jones and former Bank of Canada governor, said in an interview with BNN Bloomberg on Tuesday that we can “reasonably expect” reductions in interest rates before the end of the calendar year. 

However, he added that it's also important to understand that in subsequent years the neutral level of interest is likely to be higher in Canada and around the world than it was before the COVID-19 pandemic. 

“We cannot expect interest rates to go back to the two, 2.5, (or) three per cent rate that we experienced before COVID-19 and we are going to be living with higher rates going forward,” Dodge said. 

Fan said she believes that central banks in Canada and the U.S. are currently in a risk management stage. 

“So it's very much managing between inflationary risk, which has been dominating for the past couple of years, between downside economic risks, which is the risk of them having done too much that interest rates are going to cause a bit more damage than they'd like,” she said.