The Bank of Canada cut interest rates in June for the first time in four years, lowering the rate from five per cent to 4.75 per cent, and one chief investment strategist says economic trends point to more cuts in the coming months. 

Kevin Headland, co-chief investment strategist at Manulife Investment Management, joined BNN Bloomberg on Monday to discuss what Canadian economic data could mean for future Bank of Canada decisions and says cooling inflation is a primary factor. 

“We’re expecting modest disinflation right along consensus,” said Headland. “Right now the market is pricey and just a hair over a 60 per cent chance of rate cut in July. We expect that to be the case as we see continued disinflation towards a two per cent target.”

Headland says cooling inflation with a two per cent target is the central bank’s “core mandate,” with future policy changes airing on the side of caution. 

“Of course, they are going to keep their eye open in terms of any risk of reigniting inflation,” he said. “If they see stronger economic growth, or any issues that might cause a temporary increase in inflation that might change their mind.”

However, Headland says the Bank of Canada is “on the path to rate cuts.” Despite this trajectory, he says the Canadian economy is “definitely slowing.”

“We’re focused on the keyword, the ‘R’ word, ‘recession.’ We narrowly beat or missed a technical recession over the last two quarters of 2023. It’s important that any short-term acceleration in economic growth should not be necessarily celebrated. We are seeing pockets of weakness in the economy,” he explained. 

In terms of future projections for 2024, Headland pointed out that it’s important not to fixate on year-end data.

“It’s not a matter of when (interest rate cuts) start or how many they get done this year. But the key is that rate hikes are in the past,” he said. “We are going to be on an easing cycle.”

For the rest of Headland’s interview with BNN Bloomberg, watch the video above.