Bank of America expects that the Bank of Canada will implement additional 25bp cuts at upcoming meetings, potentially lowering the policy rate to 3% by April 2025.
Earlier this week the Bank of Canada delivered its third consecutive interest rate cut, reducing its key lending rate to 4.25% on Wednesday, as the central bank shifts focus from inflation to concerns about economic growth.
The widely anticipated quarter-percentage-point cut comes amid ongoing signs of economic softness and a steady decline in inflation.
Since the start of the easing cycle in June, the central bank has lowered rates by a total of 75 basis points.
According to Bank of America analysts, a 50bp rate cut is a possibility, but less likely given the recent economic rebound.
“We expect another 25bp cut at the October 23 meeting on the back of core inflation still trending down and the persistence of weakness in the job market,” analysts wrote in a note.
“The economy rebounded in 2Q, but we still estimate the output gap at zero.”
Bank of America noted that before its next meeting, the BoC will receive two Consumer Price Index (CPI) reports and two labor reports. It is anticipated that the BoC will persist with 25 basis point cuts at each meeting, aiming to lower the policy rate to 3.75% by the end of 2024 and to 3% by April 2025.
“The bar to cut 50bp is high given the rebound in growth in 2Q and the BoC's expectation that growth will strengthen further in 2H,” analysts wrote.
“But the bar to skip a meeting is also high, especially now that the Fed is about to cut. Although both risks are low, we see a higher risk of a 50bp cut than a skip.”