OTTAWA (Reuters) – Canada’s Finance Minister Chrystia Freeland said on Tuesday the federal budget presented to Parliament last month set the stage for a cut in interest rates.
The government has “been very careful to create conditions through its actions that would encourage a decline in inflation or enable the (central) bank to lower interest rates,” she told reporters at a conference in Ottawa.
However, she stressed that the Bank of Canada (BoC) is independent and that it is the bank’s decision whether or not to cut interest rates on June 5.
The federal budget, presented on April 16, calls for spending increases of more than 50 billion Canadian dollars ($36.66 billion) over the next five years, a move analysts and economists say is likely to fuel inflation and could allow an earlier rate cut than the BoC has suggested.
“We are aware of our side of things,” Freeland said when asked if June would be the right time for the central bank to cut interest rates.
BoC Governor Tiff Macklem said last month that the federal budget did not significantly change Canada’s fiscal trajectory.
The bank has kept interest rates steady at a 23-year high of 5% since July 2023, and money markets see a nearly 64% chance of a rate cut on June 5, while a July rate cut is fully priced in.
However, some economists believe it would be wise for the central bank to wait until July 24 – the day of the BoC’s next monetary policy announcement – to cut interest rates in order to rely on more data on inflation, growth and employment.
(1 US dollar = 1.3638 Canadian dollars)
(Reporting by Promit Mukherjee, editing by Franklin Paul and Marguerita Choy)
