Bank of Canada expected to hold interest rates this week as grey cloud hangs over economy

The Bank of Canada is expected to preach patience at its interest rate announcement this week as economists say weakening economic conditions are setting the stage for rate cuts in the coming months.

The Bank of Canada is expected to preach patience at its interest rate announcement this week as economists say weakening economic conditions are setting the stage for rate cuts in the coming months.

The central bank is widely expected to continue holding its key interest rate at five per cent on Wednesday, as many forecasters anticipate the first rate cut to come in around June.

But the Bank of Canada will have the opportunity to weigh in on the latest gross domestic product figures and how those affect the path for interest rates.

Economists say the slowdown in the Canadian economy is broadly in line with what the central bank was expecting -- and hoping for.

"At the margin, things are looking a little bit weaker than what the Bank of Canada might have envisaged," said Royce Mendes, managing director and head of macro strategy at Desjardins.

"Domestic spending was lower in the fourth quarter than it was in the third quarter. And that's particularly concerning, given the fact that the population grew so dramatically during that period."

The Canadian economy grew at an annualized rate of one per cent in the fourth quarter, which exceeded economists' expectations and the Bank of Canada's most recent forecast.