Asked about the reason for the speculation about the size of the next rate cut, Lander highlighted the lag between changes to rates and the impact it has – and previous comments from the BoC that inflation could fall towards the lower end of its target rate, allowing policymakers to cut more aggressively to boost the softer economy without worrying too much about upward inflationary pressure.
Meanwhile, a poll of 18 economists by Bloomberg unanimously rejected that a 50bps cut would happen this week or at any time during the current rate-cutting cycle. They do expect rate cuts though, of 25bps each time, with five such cuts extending into 2025 and beginning September 4. Citibank economists are among those suggesting a potential 50bps cut, in October, but they did not participate in the poll.
The Bloomberg survey also shows widespread expectation that inflation will be around 2% by the middle of 2025 in line with a softening Canadian economy, but half of respondents think the BoC will start hiking rates again in the second half of 2026.
Big banks reaction
A quick snapshot of Canada’s big bank economists in light of the latest GDP data which was released last Friday:
“We continue to expect the BoC to follow up cuts to the overnight rate by another 25 bps in September.” – Abbey Xu, RBC.