Notes From The Desk: Bank of Canada (BoC) – Auto Pilot Engaged
Today’s announcement provided little excitement, as the BoC did the expected and lowered the overnight rate by 25 bps to 4.25%
The interesting bits:
- The Bank pointed out that broad inflationary pressures continue to ease, although shelter and some services are holding inflation up.
- With CPI within the 1-3% band and slack in the economy, the Bank needs to monitor both upside and downside risks to inflation.
Our Take:
The Bank is on track to deliver 25 bps rate cuts for several more meetings. The bar to cut by 50 bps or skip a meeting is high. The former requires a significant deterioration in the labour market, while the latter requires a sustained move higher in inflation.
With the bond market expecting the terminal rate to be 2.5-2.75%, yields will be sensitive to stronger-than-expected GDP and employment data.
