Economists expect the Bank of Canada to cut its key interest rate by another 25 basis points to 2.25 per cent today.
While inflation rose to 2.4 per cent in September, above the central bank’s two per cent target, another 25-basis-point reduction would bring the overnight rate to the lower end of the BoC’s estimated neutral range of 2.25 to 3.25 per cent, says RBC economist Claire Fan in a report.
“In other words, still at levels that would not be expected to significantly add inflation pressures over time,” she added.
Labour market data also support the case for looser policy, Fan says. The unemployment rate remained elevated at 7.1 per cent last month, despite the addition of 60,400 new jobs.
National Bank economic analyst Ethan Currie likewise expects the Governing Council to lower the overnight rate again today by 25 basis points to 2.25 per cent.
“A ‘one and done’ cut is unlikely,” Currie wrote in a note. “History suggests that it’s rare for the Bank to come off the sidelines to cut, only to retreat to the sidelines again.”
Currie adds that economic slack continues to build, a trend seen in the Bank’s third-quarter Business Outlook Survey, which reflected a pessimistic near-term outlook.
“Firms are keeping hiring and investment plans on hold in light of weak demand and uncertainty,” he said.
External factors are also weighing on the outlook. Hopes for a near-term trade deal have been snuffed out after U.S. President Donald Trump suspended negotiations last week, in response to an Ontario government commercial criticizing his tariff policies.
“It’s this deterioration in the trade outlook and the increasingly clear impact it is having on key sectors — and not the economic data — that have pulled us into looking for a Bank of Canada rate cut,” BMO Capital Markets economist Douglas Porter wrote in a note.
“It makes perfect sense for rates to go to the very low end of neutral, or even a bit below, to support the economy through this difficult episode,” he added.