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CANADA: Scotia Expect 50bp BoC Cut But Would Prefer 25bp Or Even A Pause

CANADA
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  • Scotia expect the BoC to cut by 50bp on Wednesday in a statement-only affair. 
  • “I have to admit that I’m not entirely sold on the idea of cutting 50bps at this meeting.”
  • They see the following points behind the case for doing so: i) markets are almost fully priced for a 50bp cut, ii) a risk management approach may be employed by Macklem, cutting 50bp would bring the rate down to 3.25% “and hence still marginally in restrictive territory. That could retain bidirectional policy optionality for whatever 2025 brings”, iv) potential insurance depending on tariff assumptions, and v) “Governor Macklem is fundamentally a dove.”
  • “The case for what they should do is more compellingly in favour of a smaller cut. I’d even prefer a pause, but they won’t do that, so a virtual pat on the back would be given if the BoC cuts less than traders wish.”
  • One major factor for Scotia is stubborn core inflation: “Have we forgotten about this? If the BoC is at all data dependent, then it can’t really ignore the fact that its preferred measures of core inflation hit a bottom in early 2024 and have been on a highly volatile upward path since then with recent m/m figures well above the 2% target in seasonally adjusted and annualized terms.”
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  • Scotia expect the BoC to cut by 50bp on Wednesday in a statement-only affair. 
  • “I have to admit that I’m not entirely sold on the idea of cutting 50bps at this meeting.”
  • They see the following points behind the case for doing so: i) markets are almost fully priced for a 50bp cut, ii) a risk management approach may be employed by Macklem, cutting 50bp would bring the rate down to 3.25% “and hence still marginally in restrictive territory. That could retain bidirectional policy optionality for whatever 2025 brings”, iv) potential insurance depending on tariff assumptions, and v) “Governor Macklem is fundamentally a dove.”
  • “The case for what they should do is more compellingly in favour of a smaller cut. I’d even prefer a pause, but they won’t do that, so a virtual pat on the back would be given if the BoC cuts less than traders wish.”
  • One major factor for Scotia is stubborn core inflation: “Have we forgotten about this? If the BoC is at all data dependent, then it can’t really ignore the fact that its preferred measures of core inflation hit a bottom in early 2024 and have been on a highly volatile upward path since then with recent m/m figures well above the 2% target in seasonally adjusted and annualized terms.”