BoC rate cut expectations unchanged despite unexpectedly strong month for retail

The Bank of Canada’s path on interest rates remains a subject of keen observation as recent economic data paints a nuanced picture for policymakers. Despite a stronger-than-anticipated rise in Canadian retail sales in March, expectations for a rate cut from the central bank in June have remained largely unchanged.

Statistics Canada reported on Friday that retail sales climbed by 0.8% in March from February, surpassing analysts’ forecasts of a 0.7% increase. This uptick, buoyed by a significant 4.8% gain in motor-vehicle and parts dealers’ sales—attributed by some analysts to consumers buying cars before new US tariffs—suggests a more resilient consumer than some might have expected. Early indicators for April also point to continued growth, with sales projected to have increased by 0.5%.

However, the retail strength stands in contrast to the broader economic outlook presented by Bank of Canada governor Tiff Macklem. On Thursday, Macklem indicated that he anticipates second-quarter growth to be “quite a bit weaker” than the first quarter, with potential for further deceleration if trade uncertainties, particularly those surrounding tariffs, persist. The central bank previously refrained from providing detailed growth projections beyond the first quarter, citing the unpredictable nature of the tariff situation.

In the wake of these mixed signals, currency swap markets continue to price in a 32% probability of a 25-basis-point rate cut by the Bank of Canada in June, according to Bloomberg. This figure has held steady despite the positive retail sales data. Stephen Brown, deputy chief North America economist at Capital Economics, noted, “We still judge that the Bank will cut following the recent declines in private sector employment, but it will be a close call.”

The Bank of Canada’s next interest rate decision is scheduled for June 4. With a clearer picture of first-quarter GDP data expected on May 30, policymakers will be weighing consumer spending vigour against the potential headwinds of trade policy and broader economic slowdowns as they deliberate on the next move for Canada’s benchmark rate.

Source CMP
By Jonalyn Cueto