The Bank of Canada (BoC) is broadly expected to maintain its interest rate at 2.25%, which sits at the lower boundary of the central bank’s estimated neutral range of 2.25% to 3.25%. No new economic projections will be released alongside this decision.
Market consensus suggests that the BoC will remove any references to further easing, effectively signalling the end of the rate-cutting cycle. However, it is unlikely that the BoC will endorse market expectations of a rate hike in 2026 at this stage. Governor Tiff Macklem is anticipated to adopt a cautious tone, acknowledging recent economic data but remaining more hawkish than in previous communications.
In the previous rate decision, the BoC reduced rates to 2.25% and hinted at a pause, though some caveats remained in the statement. This time, significant changes are expected. The BoC should reflect on the recent GDP improvement while also noting weaker underlying details, maintaining a slightly cautious stance. The central bank is likely to recognise the ongoing strength in the labour market despite a decline in full-time jobs. The inflation outlook is expected to remain steady, with the BoC continuing to see inflation remaining under control for now.
One key wording change could involve the phrase “Governing Council sees the current policy rate at about the right level,” which may be revised to a firmer neutral stance by removing the word “about.”
In the forthcoming press conference, Governor Macklem is expected to maintain a cautious message but emphasise a stronger neutral position and readiness to adjust policy if the economic outlook shifts. He will likely point to the caveats in recent GDP and labour market data — noting, for example, that much of the GDP strength was due to a large drop in imports, and that October’s advance GDP reading showed a 0.3% contraction.
On the labour front, the data remain strong, highlighted by the largest drop in the unemployment rate in 20 years (excluding the Covid period), although the loss of full-time jobs is a negative factor.
Regarding market expectations, the probability of a rate cut in December is effectively zero, while a rate hike in 2026 is fully priced in, with anticipated total tightening of 35 basis points.
Given these factors and the market pricing, significant moves in the Canadian dollar (CAD) are unlikely today, especially with the focus on the US Federal Open Market Committee (FOMC) decision. For notable CAD weakness to emerge, the BoC would need to push back against market expectations, while a more hawkish stance could further support the CAD by opening the door to future rate hikes.
Original Source: Giuseppe Dellamotta of investinglive.com
