Economists see another rate cut likely, but the central bank's next move hinges on key data
With the Bank of Canada (BoC) having trimmed its overnight rate by 25 basis points, the focus has now shifted to what comes next. Economists from major banks are weighing the odds of another cut at the October 29 meeting, but consensus is elusive as the central bank keeps its cards close to the chest.
The BoC’s latest statement and Governor Tiff Macklem’s press conference offered little in the way of forward guidance, a point not lost on market watchers.
“The overall bias... was careful, cagey, noncommittal, and spoken in riddles—and hence very much in keeping with Macklem’s style that rarely holds the market’s hand,” Derek Holt, head of capital markets economics at Scotiabank, said. “Our forecast remains for one more 25bps cut in Q4 but exactly when will be informed by data and developments.”
Holt flagged the omission of a key line from the previous statement as a possible signal that the Governing Council wants more evidence before acting again, but he added, “Overall, I still like another cut this year and see nothing obvious here that they've signalled against that view, but at least October relative to December seems a bit richly priced in my opinion.”
Claire Fan, senior economist at RBC, pointed to the importance of upcoming data. “Looking ahead, the Bank of Canada will continue to face tough decisions as it sorts through distorted and lagged economic data for clues as to where the economy is heading, and what that implies for inflation,” Fan said.
She highlighted that the next decision will come just before the federal budget, with new employment and inflation numbers and the Q3 Business Outlook Survey all landing beforehand. “Unless there is a drastic turnaround in softening employment trends and easing core inflation in September, we think the likelihood for another cut in the October meeting is high,” Fan said.
Andrew Grantham and Katherine Judge at CIBC echoed the data-dependent stance, saying, “There was little forward guidance given in either the statement or the opening statement of the press conference, with the Bank simply stating that they will proceed ‘carefully’ as it assesses the risks to growth and inflation.” They see another 25bps cut as likely at the next meeting, citing contained inflation and a weakening labour market.
Doug Porter, chief economist at BMO, told Canadian Mortgage Professional that the Bank “did nothing to quash the possibility of further cuts. It’s just they didn’t exactly encourage them either.” Porter expects the BoC to hold in October and cut again in December, but he cautioned that “plenty could still change between now and then.”
Andrew Hencic, director and senior economist at TD, noted that “officials have space to deliver another cut with core inflation metrics softening and the labour market showing visible strains.” He expects another 25bps cut at the next meeting, but said the BoC will need to weigh the impact of the federal budget and evolving economic conditions before deciding on further moves.
Beyond domestic data, the BoC is closely watching global developments. “Export and labour market data will continue to rank high on the list of critical indicators for the BoC,” Fan said. Risks tied to US tariffs and the broader global slowdown could still prompt additional easing, especially if they spill over into Canada’s export and manufacturing sectors.
