Analyst Terminal BoC Rate Forecasts See Downward Pressure

Written after Friday’s Canadian jobs report, GS has lowered their terminal rate 50bps to 2.75% whilst JPM keeps theirs at 3% but with risks to the downside. The overnight policy rate is currently at 4.5% after two 25bp cuts this cycle.

• GS: “In light of the continued weakness in activity, the BoC's increased emphasis on growth at its July meeting, and continued inflation progress, we continue to expect a per-meeting pace of cuts going forward. Given that the output gap will continue to widen on the back of weak demand and continued supply side expansion, we see scope for a more extended cutting cycle, and are updating our forecast to assume that per-meeting cuts continue until reaching a 2.75% terminal rate (vs. 3.25% previously) in June 2025.”
• JPM: “Concern about recession in Canada’s southern neighbor and expectations for larger, more front-loaded Fed rate cuts at upcoming meetings might be seen as giving the green light for an even more dovish BoC. However, the details of today’s overall softer jobs report leave us sticking with a 25bp-per-meeting easing cycle at least through 1Q25, with the policy rate reaching 3% by mid-2025. That said, we see increasing risk for a more aggressive easing pace, with one or more 50bp cuts possible this year and a lower terminal rate if the economic data weaken more than expected.”