Heteronomics Archive

September 17, 2025

BoC Cuts Amid Trade War Damage

The Bank of Canada cut the overnight rate by 25bp to 2.5% amid 7.1% unemployment and a 1.6% Q2 GDP contraction from US tariffs.
Core inflation remains elevated, with the CPI rate at 1.9% but preferred measures around 3%, constraining aggressive easing despite growth weakness.
The BoC's forward guidance signals it is "proceeding carefully" with October cut probability around 60%, and the terminal rate at 2.25%.

July 30, 2025

The Bank of Canada held its policy rate at 2.75% as expected, but disappointed dovish expectations. The decision reflects competing inflation and growth pressures.
Underlying inflation has risen to 2.5-3.0%, remaining well above the 2% target due to persistent cost pressures. This has shifted the Bank's priority toward price stability over accommodation.
Future rate cuts require both economic deterioration and contained tariff-related cost pressures. The Bank's scenario-based approach reflects unprecedented trade policy uncertainty.

June 04, 2025

The Bank of Canada held its policy rate at 2.75%, as expected, but disappointed market participants who anticipated a dovish signal or rate cut, reflecting a cautious, data-dependent stance.
Firmer-than-expected core inflation and persistent tariff-related cost pressures have offset the disinflationary effects of a softening domestic economy, prompting the Bank to be vague and non-committal about the potential for further rate cuts.
The interest rate outlook remains highly uncertain, with future policy decisions hinging on the evolution of inflation, domestic demand, and the unpredictable trajectory of US trade policy.

April 16, 2025

The Bank of Canada held its policy rate at 2.75%, meeting expectations but disappointing those market participants who had positioned for another rate cut amid rising trade tensions and economic uncertainty.
The decision reflects a careful balance between weakening domestic demand and inflation risks from tariff-related cost increases, with short-term inflation expectations having risen despite moderating core inflation.
Future policy adjustments will be guided by the evolving trade landscape, the extent of demand erosion and cost pass-through, and the anchoring of inflation expectations, with the Bank highlighting its limited role in mitigating trade-driven shocks.