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MNI BOC Review - June 2024: Easing Underway, Meeting-By-Meeting Approach

The Bank of Canada decided to cut the overnight policy rate by 25bps to 4.75%, and suggested it is reasonable to expect further cuts if the data allows.

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Executive Summary

  • The Bank of Canada decided to cut the overnight policy rate by 25bps to 4.75%. The decision was in line with the majority of surveyed estimates, however, a minority had been forecasting an unchanged decision. The bank also decided to continue its policy of balance sheet normalisation.
  • The statement noted there is continued evidence that underlying inflation is easing and that policy “no longer needs to be as restrictive”.
  • Regrading policy going forward, Governor Macklem suggested “it is reasonable to expect further cuts” to the policy rate if inflation allows, while emphasising that the Governing Council will take decisions on policy one meeting at a time.
  • Given the cut was not fully priced by markets, the initial reaction as dovish. The signal of expected further cuts exacerbated this reaction for the Canadian dollar, which declined around 50 pips against the dollar following the announcement.
  • A more cautious tone in the press conference, and an emphasis on the data dependent nature of the Bank going forward, saw local assets slowly retrace these initial dovish leans.
  • Analysts remain divided over whether the BoC will cut again in July. Easing estimates for the remainder of 2024 appear to range from between 50-100bps.

Click to view the full review:

BOCReviewJun2024.pdf

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Executive Summary

  • The Bank of Canada decided to cut the overnight policy rate by 25bps to 4.75%. The decision was in line with the majority of surveyed estimates, however, a minority had been forecasting an unchanged decision. The bank also decided to continue its policy of balance sheet normalisation.
  • The statement noted there is continued evidence that underlying inflation is easing and that policy “no longer needs to be as restrictive”.
  • Regrading policy going forward, Governor Macklem suggested “it is reasonable to expect further cuts” to the policy rate if inflation allows, while emphasising that the Governing Council will take decisions on policy one meeting at a time.
  • Given the cut was not fully priced by markets, the initial reaction as dovish. The signal of expected further cuts exacerbated this reaction for the Canadian dollar, which declined around 50 pips against the dollar following the announcement.
  • A more cautious tone in the press conference, and an emphasis on the data dependent nature of the Bank going forward, saw local assets slowly retrace these initial dovish leans.
  • Analysts remain divided over whether the BoC will cut again in July. Easing estimates for the remainder of 2024 appear to range from between 50-100bps.

Click to view the full review:

BOCReviewJun2024.pdf