- Prior rate was 3.75% after 50 bps on October 23
- This is the fifth consecutive rate cut
- Economists widely expected a 50 basis point rate cut
- The market was pricing in a 90% chance of a rate cut
- Prior statement said ” If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further” but that was dropped
- Statement says “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time”
- Statement says “Governing Council has reduced the policy rate substantially since June.”
- Macklem statement says “with the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected.”
- Macklem notes that Q3 GDP growth was lower than BOC expected and Q4 tracking lower as well
- Macklem says Canada’s job market is still softening
- Macklem said consumer and housing both improved in Q3 as lower rates boosted spending
- Reduced immigration targets suggest 2025 growth will be slower than BOC expected
- Two-month GST tax break will lower inflation in January then reverse in February
- The economic outlook is clouded by the possibility of new tariffs on Canadian exports to the United States, which Macklem calls “a major new uncertainty”
USD/CAD was trading at 1.4182 ahead of the report compared to the four-year low of 1.4194. The next Bank of Canada rate decision is on Jan 29 and market pricing suggested a 50/50 chance of a cut prior to today’s decision.
There’s a clear signal here that they don’t intend to continue to cut in 50 basis point increments but plan to continue to ease rates. The pricing for January is 17.7 bps, which is 70% and would get the BOC to 3.00%.
USD/CAD fell to 1.4140 from 1.4082 on the release as the explicit intention to cut was taken out of the main statement, however I think the comments from Macklem mitigate that.
This article was written by Adam Button at www.forexlive.com. Source