📝Expect BoC to Start Cutting Rates In June: BMO

The global growth outlook was revised up a touch for each of the next two years, but still looks to slow in 2024. The U.S. is the bright spot seeing a big upward revision in 2024 (now in line with BMO's call), while the rest of the world was little changed. The Canadian GDP growth forecast was trimmed 1-to-2 ticks for each of 2023, 2024, and 2025. The near-term forecasts were also cut, with 2023Q4 growth now at 0% (from +0.8%) and Q1 is +0.5%, not too far from our call for flat in both quarters. The inflation forecasts were little changed from the October MPR, with only 2024Q4 a tick lower at 2.4% y/y.

Perhaps the most important part of the statement is that the Bank believes that the Canadian economy is now running in excess supply. That should be encouraging for policymakers as it drives disinflationary pressure. However, we're not there yet, and inflation remains a concern given "the persistence in underlying inflation." Indeed, near the beginning of Governor Macklem's opening statement he says that "We need to give these higher rates time to do their work." And, toward the end, reiterates with "Monetary policy is working, and we need to continue to let it work."

The rapid and sizeable rate hikes over the past two years are doing their job, but it looks like we'll be at 5% for a while yet as the BoC wants to see a further slowing in inflation. BMO's call for a June start to rate cuts looks perfectly reasonable at the moment. - BMO Capital Markets