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MNI BoC Preview, Jan'25: Easing Amidst Extreme Uncertainty

Markets look for clues around the BoC's response function to potential US tariffs with a wide range of terminal views
Central Bank PreviewBank of CanadaCentral Bank NewsHomepageCanadaBoC - PreviewCentral Bank ReportsMarketsStoryNorth America

Executive Summary

  • The BoC is widely expected to cut its policy rate by 25bp on Wednesday as it dials back the pace of easing after two consecutive 50bp cuts.
  • The last, a ‘hawkish’ 50bp cut, could well have been a prelude to a pause this month if going on subsequent data alone.
  • However, with US President Trump’s second term underway and the musing of 25% tariffs possibly starting on Feb 1, the outlook looks far more complicated for the Bank. 
  • A gradual cut looks prudent at this stage, taking the overnight rate target to 3.00% for a little further within the BoC’s estimated range for the neutral rate of 2.25-3.25%.
  • New forecasts will be scrutinized for latest thinking on how Bank weighs up conflicting potential tariff impacts. The matter is better suited in a dedicated section of the MPR rather than baseline forecasts, per 2019 scenario analysis estimating heavy declines in Canadian GDP growth along with a temporary acceleration in inflation. 

Please find the full report here: BOCPreviewJan2025.pdf

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Executive Summary

  • The BoC is widely expected to cut its policy rate by 25bp on Wednesday as it dials back the pace of easing after two consecutive 50bp cuts.
  • The last, a ‘hawkish’ 50bp cut, could well have been a prelude to a pause this month if going on subsequent data alone.
  • However, with US President Trump’s second term underway and the musing of 25% tariffs possibly starting on Feb 1, the outlook looks far more complicated for the Bank. 
  • A gradual cut looks prudent at this stage, taking the overnight rate target to 3.00% for a little further within the BoC’s estimated range for the neutral rate of 2.25-3.25%.
  • New forecasts will be scrutinized for latest thinking on how Bank weighs up conflicting potential tariff impacts. The matter is better suited in a dedicated section of the MPR rather than baseline forecasts, per 2019 scenario analysis estimating heavy declines in Canadian GDP growth along with a temporary acceleration in inflation. 

Please find the full report here: BOCPreviewJan2025.pdf

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