BoC rate cuts may be more likely after weak GDP reading

Money markets put roughly a 40% chance on a quarter-point Bank of Canada cut by mid-July after Statistics Canada reported Q4 GDP contracted 0.6% annualized.

Canada's weaker-than-expected fourth-quarter GDP reading prompted markets to raise the odds of a mid-year Bank of Canada rate cut. Statistics Canada reported Q4 GDP contracted at an annualized pace of 0.6%, below forecasts of flat growth. The Bank of Canada's policy rate remains at 2.25%, and market pricing shifted after the data release. Economists cited a large inventory drawdown as the main cause of the headline miss while describing underlying demand as mixed. Market and data snapshot: - Money markets priced close to a 40% probability of a 25 basis-point Bank of Canada cut by the July 15 policy meeting, based on overnight index swaps tracked by Bloomberg. - Statistics Canada reported Q4 GDP contracted at an annualized rate of 0.6%, versus expectations of flat growth. - The Bank of Canada’s policy rate is 2.25%; several economists said the Q4 weakness was concentrated in inventories and that the data only modestly raises the odds of renewed rate cuts. Summary: Weaker Q4 GDP led markets to modestly increase the probability of a mid-year rate cut while short-term yields and the Canadian dollar showed limited movement. Economists in the article emphasized inventory effects and mixed underlying demand, leaving the policy outlook uncertain. Undetermined at this time.