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CANADA: RBC Continue To See BoC On Path To Slightly Stimulative 2%

CANADA
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  • RBC expect the BoC to cut 25bp to 3.00% on Wednesday.
  • “A weak Canadian economy has prompted earlier and more aggressive interest rate cuts from the BoC compared to other advanced economy central banks. But the 3.25% current overnight rate is still at the top end of the BoC’s 2.25% to 3.25% estimated range for “neutral,” which would not put upward or downward pressure on growth or inflation over time.”
  • “The BoC clearly communicated in its December policy decision that with the interest rate no longer at obviously “restrictive” levels, the pace of future rate cuts would likely be more gradual, and contingent on economic data.”
  • “Recent Canadian gross domestic product growth and inflation data have been mixed. Q4 GDP growth is tracking close to the BoC’s 2% October forecast and inflation, excluding indirect taxes, ticked higher in December. The BoC’s Q4 business outlook survey flagged some improvement in business sentiment. But, labour markets are still soft enough to argue that more interest rate cuts are needed for the economy to rebound enough to prevent inflation from undershooting the 2% target.”
  • RBC continue to expect the BoC will ultimately need to cut to a “slightly stimulative” 2% this year.
  • “We expect policymakers would be more likely to cut interest rates faster and further should those downside risks materialize with the ultimately disinflationary growth and labour market implications from tariff hikes more a concern than a one-time increase in prices.”
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  • RBC expect the BoC to cut 25bp to 3.00% on Wednesday.
  • “A weak Canadian economy has prompted earlier and more aggressive interest rate cuts from the BoC compared to other advanced economy central banks. But the 3.25% current overnight rate is still at the top end of the BoC’s 2.25% to 3.25% estimated range for “neutral,” which would not put upward or downward pressure on growth or inflation over time.”
  • “The BoC clearly communicated in its December policy decision that with the interest rate no longer at obviously “restrictive” levels, the pace of future rate cuts would likely be more gradual, and contingent on economic data.”
  • “Recent Canadian gross domestic product growth and inflation data have been mixed. Q4 GDP growth is tracking close to the BoC’s 2% October forecast and inflation, excluding indirect taxes, ticked higher in December. The BoC’s Q4 business outlook survey flagged some improvement in business sentiment. But, labour markets are still soft enough to argue that more interest rate cuts are needed for the economy to rebound enough to prevent inflation from undershooting the 2% target.”
  • RBC continue to expect the BoC will ultimately need to cut to a “slightly stimulative” 2% this year.
  • “We expect policymakers would be more likely to cut interest rates faster and further should those downside risks materialize with the ultimately disinflationary growth and labour market implications from tariff hikes more a concern than a one-time increase in prices.”