Economists across Canada’s major banks have finalized their projections for the Bank of Canada’s (BoC) interest rate decision, largely influenced by the recent Consumer Price Index (CPI) data released by Statistics Canada. While some analysts view the latest inflation figures as a non-factor in their predictions, there is a consensus that the BoC’s decision may involve pivotal considerations.
RBC economist Abbey Xu articulated that the BoC’s choice today will hinge closely between a 25 basis point cut to the overnight rate or maintaining the current rate. She highlighted notable signs of economic softening, including a rising unemployment rate and a contraction of Q2 GDP attributed to weakened trade flows, despite strong domestic demand. Nevertheless, Xu suggested that emergent signs of recovery in Q3, particularly in exports and manufacturing, point towards a potentially temporary slowdown from the previous quarter. As a result, she asserted that the inflation report released on Tuesday does not significantly alter this outlook.
In similar vein, TD Bank’s Andrew Hencic expressed confidence that the BoC “should have room to cut” rates today. He underscored that the economy continues to display evidence of diminishing momentum, characterized by an uptick in the unemployment rate alongside accumulating job losses. Hencic noted that the removal of various retaliatory tariffs may mitigate some price pressures, reinforcing his belief that the central bank could implement two rate cuts this year to bolster economic growth and maintain inflation within the target range.
Scotiabank economist Derek Holt maintained that Canadian core inflation has effectively reinforced the necessity for a rate cut by the Bank of Canada. He remarked that market expectations are fully leaning towards a cut, with the anticipation of at least one additional cut in the foreseeable future. For the BoC to opt against a cut, Holt indicated that compelling arguments would be required to justify such a decision, given that it could lead to tightened financial conditions following the anticipated cuts.
CIBC’s Andrew Grantham weighed in, projecting a 25 basis point rate cut today, with expectations for another reduction in October. Meanwhile, BMO chief economist Doug Porter shared a similar sentiment, expecting a cut following what he described as a “mostly a low-drama affair” in Tuesday’s inflation data. However, he cautioned that the central bank is likely to proceed cautiously, influenced by year-over-year trends that hover around three percent in certain core measures and the possibility of a temporary uptick in headline inflation in the upcoming report.
As the anticipated decision approaches, economists remain focused on the balance the Bank of Canada must strike between stimulating the economy and managing inflation trends, with clarity expected in the near future.
