Bank of Canada doubles down on monetary easing
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The Bank of Canada (BoC) cut its policy rate by 25 bps to 4.50% at today's monetary policy announcement, following on from the initial rate cut it delivered in June.
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Just as important as the rate cut, the BoC offered dovish policy guidance, saying that “downside risks are taking on increased weight in our monetary policy deliberations.” The BoC said spare capacity in the economy has increased, and that household spending has been a particular area of weakness. The central bank also said further rate cuts are likely if inflation keeps easing.
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Reinforcing this dovish guidance, the BoC lowered its near-term GDP growth forecasts, and said it expects CPI inflation to reach its 2% inflation target by the end of 2025.
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We view today's announcement as fully consistent with our forecast for further 25 bps rate cuts from the Bank of Canada at its September and October announcements. Should economic growth, as well as wages and inflation, remain especially subdued, the central bank could lower interest rates at its December meeting as well.
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