This morning, the BoC cut the policy rate by 25 bps, bringing it to 2.25%. The vital development was the Bank signalling that this might be it for rate cuts, at least in the near term.
The interesting bits.
- “The Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”
- The MPR forecast for 2025 and 2026 GDP is 1.2% and 1.1% respectively. These numbers are ~0.7% lower than their January forecast, with half of the downward revision due to tariffs and uncertainty (structural), and the other half due to weaker demand (cyclical).
The implications.
The BoC is passing the baton to the federal and provincial governments.
- Governor Macklem pointed out that sluggishness in the domestic economy has both cyclical and structural components.
- Monetary policy can offset the cyclical part of the slowdown (demand), but the structural portion (trade and productivity) requires fiscal policy solutions.
- This is a clear signal to provincial and federal governments that it is their responsibility to enact policies to support growth and improve productivity.
Yields have risen approximately 6-8 bps as traders react to the Bank moving to the sidelines for the moment.
