Economists at Canada’s banks have locked in their forecasts for today’s BoC rate decision. Many say Tuesday’s Consumer Price Index (CPI) reading from Statistics Canada did not move the needle on their prediction.
“We continue to think the Bank of Canada’s decision tomorrow will be a close call between a 25 basis point cut to the overnight rate and a hold,” RBC economist Abbey Xu wrote on Tuesday.
“Evidence of economic softening is apparent: unemployment is rising, and Q2 GDP contracted as trade flows weakened despite robust domestic demand. That said, early signs of recovery are emerging in Q3, with exports and manufacturing and wholesale sale volumes posting gains, suggesting the Q2 slowdown could be temporary,” she added. “[Tuesday’s] inflation report does little to sway that assessment.”
TD Bank’s Andrew Hencic says the BoC “should have room to cut” today.
“The economy continues to show signs of waning momentum as the unemployment rate ticks higher and job losses accumulate,” he wrote on Tuesday.
“The termination of many retaliatory tariffs will help provide some offset to price pressures,” he added. “We maintain the view that the BoC will have room to deliver two cuts this year to support growth and keep inflation in the target range.”
Scotiabank economist Derek Holt says Canadian core inflation has “cemented” a rate cut by the Bank of Canada.
“Markets now have a cut fully priced, and at least another one on the bag of chips theory (you can’t just take one out…),” he stated in a research note on Tuesday. “For the BoC to hold tomorrow would need extremely good arguments in order to avoid materially tightening financial conditions by wiping out priced cuts.”
Andrew Grantham at CIBC expects a 25 basis point cut from the Bank today, and another one in October.
BMO chief economist Doug Porter also expects a rate cut today, after Tuesday’s inflation data turned out to be “mostly a low-drama affair” in his view.
“We suspect the Bank will continue to take it one step at a time, restrained by the three per cent year-over-year trends in some core measures, as well as the likelihood that headline inflation will pop, at least temporarily, in next month’s report,” he wrote.
