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CANADA: National See 50bp Cut In Oct or Dec As Increasingly Defensible

CANADA
  • National look for a 50bp cut in Q4, possibly as early as October as part of a forecast that sees 75bp of cuts over the next two meetings (to 3.5% 4Q24). BoC-dated OIS currently has 64bp of cuts priced over those two meetings.
  • National then see rates at 3.0% in 1Q25 and a terminal 2.75% from 2Q25  (BoC staff view a neutral rate is between 2.25-3.25%).
  • “We would mount an argument for accelerating rate cuts, a 50 basis point move an increasingly defensible proposition in our view (if not at the October decision than by December).”
  • “While a larger cut would signify Governing Council’s growing unease, this shouldn’t be confused with monetary policy stimulus. Removing restrictiveness in a timely manner should be the overarching goal at this point.”
  • “The immediate pick-up in GDP and employment that they’d projected looks less and less likely to materialize. That means more slack will accumulate this year, which supports turning this cutting cycle up a notch.”
  • The explicit call for a 50bp cut shouldn’t be too surprising as they wrote after Friday’s jobs report that the BoC needed to get to neutral “as fast as possible”, which “could mean delivering larger than 25 bps cuts in next decisions.”
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