Canada finance minister says budget created conditions for cut in interest rates

Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland presents the federal government budget for fiscal year 2024-25, in the House of Commons on Parliament Hill in Ottawa

OTTAWA (Reuters) - Canada's Finance Minister Chrystia Freeland said on Tuesday that the federal budget presented to the Parliament last month had created conditions for interest rates to come down.

The government has "been very mindful of acting in such a way that would create conditions that support the decline in inflation, or creating conditions that would make it possible for the (central) bank to bring interest rates down," she told reporters at a conference in Ottawa.

She, however, said the Bank of Canada (BoC) is independent and it will be the bank's decision to cut interest rates on June 5 or not.

The federal budget, presented on April 16, has increased new spending by over C$50 billion ($36.66 billion) over the next five years, prompting analysts and economists to say that it could likely stoke inflation and prevent from interest rates coming down earlier than the BoC could.

"We have been conscious of our side of things," Freeland said, when asked if June would be a right time for the central bank to cut rates.

BoC Governor Tiff Macklem said last month that the federal budget had not significantly altered Canada's fiscal path.

The bank has kept interest rates steady at a 23-year high of 5% since July 2023 and money markets see almost 64% chance of a rate cut in on June 5, while a rate cut in July is fully priced in.

Although some economists have said that it will prudent for the central bank to wait till July 24 - BoC's next policy announcement - to cut interest rates to get the backing of more data on inflation, growth and jobs.

($1 = 1.3638 Canadian dollars)

(Reporting by Promit Mukherjee, Editing by Franklin Paul and Marguerita Choy)