For the first time since March, there was a clear consensus at the BoC to cut the policy rate by 25 bps to 2.5%.
The important bits.
The decision to cut was based on the balance of risks shifting from inflation to the labour market and the economy.
Inflation.
- On balance, recent data indicate that upward pressures on underlying inflation have diminished.
- With the removal of retaliatory tariffs, the BoC sees less upside risk to inflation.
The Economy.
- The labour market has softened further, dampening domestic demand.
- There are signs of slowing global growth.
- Tariffs, uncertainty, and falling demand are negatively impacting business investment and hiring.
Looking ahead.
Although Governor Macklem maintained that the Governing Council remains data dependent, we believe that the Bank will cut rates to at least 2.25% by year end. Furthermore, we think the risk is clearly tilted towards the Bank cutting deeper than that. Ultimately, the amount of monetary stimulus required will depend on the federal budget (Nov. 4th) and the outcome of CUSMA renegotiations.
