(Bloomberg) -- The Bank of Canada cut its overnight rate to 3.75% on Wednesday, its lowest level since December 2022. Here’s what economists and investors are saying about it.
David Rosenberg, president of Rosenberg Research
While the Bank is hinting that markets should not expect to see a steady diet of jumbo rate cuts and that future decisions will be made meeting to meeting as opposed to being on some preset path, the reality is that embedded in the BOC forecasts is lingering “excess supply” beyond 2025 and into 2026. When we model this situation out, it implies a peak unemployment rate of 8% this cycle (from 6.5% today and the 4.8% low posted in July 2022) and a 0% inflation rate (from 1.6% currently and light years away from the 8.1% cycle peak).
The path of future rate cuts may be open for debate. But the destination is not. Even after today’s 50 beeper, the policy rate is still 100 basis points north of where the Bank’s own midpoint estimate of neutral resides. A policy rate above the neutral rate is totally incongruent for an economy in a state of lingering excess supply.
Phil Mesman, portfolio manager at Picton Mahoney Asset Management
The BOC sees low inflation and wants stronger growth and they’re getting ahead of it. The market allowed the bank to go 50 and the economy is weak enough to go 50.
While data dependent, optionality remains open for another 50 bps cut in December if inflation and growth are in line or lower (versus BOC forecasts). No reason to reduce to 25 bps unless data comes in hot.
Tiffany Wilding, economist at Pacific Investment Management
Rates may need to fall below the BOC’s estimated neutral rate range of 2.25% to 3.25% in order to stave off a significant undershoot of its inflation target and further weakening of the economy. In the near term, we expect the BOC to remain data dependent and think another 50 bps rate cut will be on the table in December if data remains weak in the coming weeks.
Doug Porter, chief economist at Bank of Montreal
Today’s outsized rate cut is mostly a response to the heavy-duty decline in headline inflation in the past few months. However, the underlying forecast and the Bank’s mild tone suggest that the future default moves will be 25 bps steps, unless growth and/or inflation surprise again to the downside. We certainly can’t rule that out, and our calls on both GDP and CPI are slightly lighter than the Bank’s, so there is still a risk of another 50 bps step at some point.
Avery Shenfeld, chief economist at CIBC
An outsized rate cut was a no-brainer, and the simple message from the Bank of Canada is that there’s more to come if events unfold as expected.
While the Bank sees better times ahead in the next two years, with growth averaging 2.2%, that isn’t by any means ruling out further interest rate relief, as softer monetary conditions are cited as the driver for the improvement. There’s really nothing in today’s announcement that should raise eyebrows in markets, with the 50 bps move nearly fully priced in ahead of time.
Etienne Bordeleau-Labrecque, portfolio manager at Ninepoint Partners
“I think they have some catching up to do,” Bordeleau-Labrecque said on BNN Bloomberg Television. “Interest rates are still restrictive; the higher end of their neutral range is 3.25% so we’re still 50 basis points from there. Interest rates are still dragging down the economy, and it takes time for interest rates cuts or hikes to make their way through the real economy. So actions taken today aren’t necessarily having an impact on the economy today; it might take six, 12, 18 months to do so.”
Warren Lovely, chief rates strategist at National Bank Financial
“Let’s be honest, there’s a lot of uncertainty: geopolitical uncertainty that we still have to contend with, there are elections,” he said on BNN Bloomberg Television. “There’s fiscal policy announcements that we could have even in this country that could have some bearing on where the Canadian economy goes. So, let’s not tie our hands unnecessarily — let’s remain really within the ability to react to conditions on the ground.”
“Conditions on the ground right now do not support a 3.75% overnight policy rate. It should be lower — it will be lower. The pacing, the magnitude of those future cuts, again, remains to be seen.”
Stuart Paul, Bloomberg Economics
Wednesday’s outsize interest-rate cut shows the Bank of Canada has a sense of urgency to return policy to a more neutral stance. With headline inflation below 2%, the preferred core measures below 2.5% and diffusion dissipating, policymakers are turning their attention toward the labor market and living standards. With the central bank discounting strong September employment growth, we think odds slightly favor another 50 bps cut in December.
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