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Consumer prices have stayed below the upper range of BoC's 1-3%
target this year and gross domestic product (GDP) expanded more
slowly than expected in the first quarter, with stalled growth
in March.
The central bank aims to keep inflation at the midpoint of its
target range.
These data points have been further backed by easing wage
inflation, rising business insolvencies and softer retail sales,
economists said.
"There's more slack in the economy than the Bank of Canada
previously estimated," said Randall Bartlett, senior director of
Canadian economics with Desjardins Group, adding this situation
would likely tilt the bank towards a June cut.
The central bank's monetary policy committee will announce its
interest-rate decision on Wednesday at 1345 GMT (0945 local
time).
Financial markets are betting on an almost 83% chance of a rate
cut on Wednesday.
Starting more than two years ago, the BoC has cranked up
borrowing costs by 475 basis points to a more than 23-year high
of 5% in its efforts to tame inflation, which touched a peak of
8.1% in June 2022, a four-decade record.
The bank has kept the key rate at the current level since July.
While these efforts helped in easing inflationary pressures, the
path towards the BoC's 2% target has been slow.
"If we lower our policy interest rate too early or cut too fast,
we could jeopardize the progress we've made bringing inflation
down," Governor Tiff Macklem said in April during the previous
monetary policy decision announcement, saying the bank was
seeking more data to be sure of a cut.
Almost three-quarters of economists polled by Reuters last week
predicted the bank would trim interest rates by 25 basis points
in its June meeting.
However, some economists and analysts thought the BoC could wait
until July for a cut, to benefit from two more sets of data each
on inflation and jobs and one GDP reading.
"We haven't established this (inflationary) trend down... I
think the Bank of Canada is going to just be cautious," said
Brooke Thackray, research analyst with Global X, a fund
management company.
(Reporting by Promit Mukherjee; Editing by Rod Nickel)
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