Interest Rate Decision
1. Interest Rate Level: The Bank of Canada cut interest rates by 25 basis points to 2.25% as expected, in line with market expectations.
2. Forward Guidance: The current policy rate is broadly appropriate, provided that inflation and economic trends are broadly in line with expectations.
3. Tariff Impact: There remains considerable uncertainty regarding US tariffs and their impact; monetary policy cannot compensate for the damage caused by the trade war.
4. Economic Forecast: Inflation is projected to be 2.0% in 2025, 2.1% in 2026, and 2.1% in 2027; economic growth is projected to be 1.1% in 2026 and 1.6% in 2027.
5. Market Impact: The US dollar fell to a four-week low against the Canadian dollar; the money market is pricing in no rate cuts from the Bank of Canada before March next year.
McClem's Speech
1. Tariff Impact: The trade conflict has destroyed some of the Canadian economy's capacity; interest rate policy is providing stimulus, but its effect is limited.
2. Forward Guidance: Uncertainty remains high; we are prepared to respond if the outlook changes significantly; the inflation target cannot be ignored. 3. Economic Conditions: Consumption growth will slow due to concerns about the labor market. Two quarters of negative growth are possible, but this is not the Bank of Canada's forecast.
