Archive

Monetary Policy Tide Is Turning Up

• Markets are already pricing the return of rate hikes in 2026 for Canada, Australia and New Zealand, while policymakers elsewhere are starting to warn of the possibility.
• Transitional support to structural adjustments needs unwinding, as Canada signals most prominently. Broader activity resilience and inflation reveal the risk of overstimulation.
• The BoE already committed a policy mistake by easing too early, and is split by those recognising the persistent danger. Market pricing remains too dovish for 2026.

By Philip Rush

BoC: Structural Pause at 2.25%

• The BoC held the policy rate at 2.25%, matching the consensus, and framed this as a pause near neutral that likely extends the horizon for stable rates.​
• Strong but trade‑driven Q3 growth and still‑soft domestic demand argue against near‑term hikes, keeping the bias toward a prolonged hold rather than renewed easing.​
• With CPI near 2% and core around 2.5%, the Bank sees inflation anchored, reducing pressure for further cuts and reinforcing a data‑dependent, higher‑for‑longer rate stance.​

BoC Cuts to 2.25%: End or Pause?

• The Bank of Canada cut its policy rate by 25bp to 2.25%, matching the consensus, and signals the current rate is about right to sustain 2% inflation.
• Structural damage from tariffs limits further monetary easing. Fiscal policy is expected to carry the economic support burden ahead.
• Economists are divided: some see the cycle complete at 2.25%, others forecast further cuts to 1.75-2.0% if growth disappoints materially.

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%.