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Chance of rate cut rising as markets anxiously await details of Trudeau’s stimulus rescue

Markets await details of Prime Minister Justin Trudeau's promised stimulus package for the Canadian economy.

The likelihood of a Bank of Canada rate cut is rising as markets await details of Prime Minister Justin Trudeau’s promised stimulus package for the Canadian economy.

Markets have begun pricing in a greater chance this week that the Bank of Canada will move to cut its interest rates sometime this year, with the overnight index swap market suggesting that about a fifth of participants now see negative interest rates by the end of 2016.

With growth faltering and likely to remain weaker than expected by the BoC, the probability of a rate cut has increased

Charles St-Arnaud, an economist at Nomura Global Economics, said Tuesday that while the Canadian economy desperately needs the stimulus, the central bank might be forced to cut rates the longer it takes details about the package to be revealed. Finance Minister Bill Morneau is not expected to table the budget until sometime between late February and the end of March.

“With growth faltering and likely to remain weaker than expected by the BoC, the probability of a rate cut has increased,” he said in a note to clients Tuesday. “Moreover, after almost two months in power, the announcement of the size and details of the fiscal stimulus by the new federal government are still being awaited and one could start to wonder if the economy can wait the months it will need for the impact to be felt.”

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