By Promit Mukherjee
OTTAWA (Reuters) -The Bank of Canada is expected to hold interest rates at 2.75% on Wednesday, with rising core measures of inflation and better-than-expected gross domestic product growth in the first quarter seen pushing policymakers towards a pause.
According to a majority of economists in a Reuters poll, the BoC will hold interest rates at its June meeting, but at least two more cuts are likely this year.
Economists said the bank will likely adopt a wait-and-see approach as the impact of tariffs imposed by U.S. President Donald Trump plays out on the Canadian economy.
“While growth has been soft and the labor market has been deteriorating, firm underlying inflation measures and trade policy uncertainty are likely to give the BoC some pause,” said David Doyle, head of economics at Macquarie.
Canada’s annual inflation rate fell to 1.7% in April due to a drop in energy prices, but closely tracked core measures of inflation rose above the bank’s target range of 1% to 3% in the same month.
The bank paused its rate-cutting cycle in April after seven cuts in a row, as a 225-basis-point reduction over a space of nine months helped prepare the economy to withstand the impact of tariffs.
GDP growth also surprised in the first quarter, taking away some incentive to cut rates, economists said.
First-quarter gross domestic product grew by 2.2% on an annualized basis driven by exports to the U.S., data showed last week, helping shrink expectations of a rate cut in June.
Currency swap markets show the odds for no cut on Wednesday now stand at close to 78%.
However, there are signs that tariff impacts are starting to take a toll on the economy, prompting some economists to call for a cut.
Domestic consumption was practically absent in the first quarter, an advance estimate of April GDP was not encouraging and the unemployment rate rose to 6.9% in April, the highest since November.
“It would be prudent for the Bank of Canada to cut… to get ahead of what is clearly a weakening economy in Canada,” said Randall Bartlett, senior director of Canadian economics at Desjardins.
(Reporting by Promit Mukherjee in Ottawa; Editing by Nia Williams)
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