The Bank of Canada left the benchmark interest rate unchanged at five per cent, upgraded its forecast for economic growth in 2024 and governor Tiff Macklem said a rate cut will be on the table when policymakers next gather in June. Here’s what you need to know: 

Hurry up and wait: Macklem, who has been teasing a rate cut since the end of last year, released a new forecast that has headline inflation at 2.2 per cent at the end of 2024. That’s close to the central bank’s two per cent target, but Macklem said he still needs to see more evidence that the country’s inflationary fever has truly broken. “Recent progress is encouraging,” Macklem said in a statement. “We want to see this progress sustained.”

Asked directly at a Wednesday morning press conference whether a June rate cut was possible, Macklem said, “Yes, it’s within the realm of possibilities.”

Trading nation: One of the biggest changes in the central bank’s new quarterly forecast is its outlook for U.S. growth—now 2.7 per cent in 2024 and 1.8 per cent in 2025, up from 1.7 per cent and 1.2 per cent previously. Canada will be able to ride in the slipstream of all that economic activity. The Bank of Canada raised its forecast for Canadian growth this year to 1.5 per cent from an earlier estimate of 0.8 per cent, primarily because of expectations that exports will greatly exceed imports. Policymakers noted that export numbers also will get a boost from the Trans Mountain pipeline expansion, which will start shipping oil to the Pacific coast on May 1. 

New neutral: The “neutral rate” is a theoretical concept that attempts to divine the borrowing rate at which monetary policy is neither helping nor impeding economic growth. It’s based on another theoretical concept—the rate at which the economy can grow without stoking inflation, a measure that’s derived from factors such as productivity and demographic changes. 

The Bank of Canada increased its estimate of “potential” growth to 2.5 per cent, mostly because of the big increase in immigration over the past year. The estimate of the neutral rate is now roughly 2.75 per cent, a quarter point increase from last year. All things equal, that means the Bank of Canada will stop cutting interest rates before we get back to the low levels that existed before the COVID-19 pandemic. 

Bottom line: The Bank of Canada cut its inflation forecasts even though economic growth appears stronger, suggesting policymakers remain confident they will be able to drop borrowing rates this year. But real-world evidence has to match the projections generated by their models. Shelter costs will be sticky because of the mismatch between supply and demand. Evidence of declining inflation elsewhere might be enough to justify a cut in June or July. The unemployment rate is rising, so stronger GDP readings might distract from what’s happening on the ground. 

Join The Logic’s executive editor April Fong and economics columnist and editor-at-large Kevin Carmichael on Thursday, April 11 at 12 p.m. ET as they discuss the Bank of Canada’s interest rate announcement and other key trends playing out in the Canadian economy. Register here.