Capital Economics forecasts the Bank of Canada would likely opt for a 25 basis point reduction in its policy rate in the upcoming meeting, despite recent economic data that could warrant a pause in rate cuts. The decision is influenced by the persistent threat of tariffs, which poses a risk to the economic outlook.
In December, the Bank of Canada made a close decision to reduce the policy rate by 50 basis points, a move that was debated against a smaller 25 basis point cut. The decision was aimed at reaching the upper end of the Bank’s neutral range estimate for the policy rate, which is between 2.25% and 3.25%. This was done to ensure the rate was not considered restrictive.
Following the rate cut in December, the Bank’s communication took on a less dovish tone, indicating a shift to a more cautious approach. The statement that the Bank expected to reduce the policy rate further was replaced with a message of evaluating the need…
