By Indradip Ghosh
BENGALURU (Reuters) -The Bank of Canada will cut its overnight rate by a quarter point on September 17 as the labour market deteriorates and economic activity weakens, according to most economists in a Reuters poll, who also expect at least one more cut next quarter.
Canada’s central bank has faced growing pressure to resume easing after holding rates steady since March, following a cumulative 225-basis-point reduction – one of the most aggressive among its G10 peers.
Last week, official data showed the economy shed 65,500 jobs in August, pushing the unemployment rate to a nine-year high outside of pandemic periods.
That, alongside a more severe than expected 1.6% contraction in economic activity last quarter due to the effect on exports of U.S. tariffs on steel, aluminum, and automobiles, fuelled rate cut bets and pushed the Canadian dollar down.
Nearly 80% of economists, 25 of 32, in a September 9-12 Reuters poll said the BoC would cut its key rate by 25 basis points to 2.50% in the upcoming policy meeting, a bigger majority than the 64% in a July survey and in line with market pricing.
Seven economists expected it to hold rates again.
The Federal Reserve is widely expected to cut rates for the first time this year on September 17.
“(The August job) print should give the BoC more conviction that the outlook has softened and supports our view for the Bank to cut another 25 bps in September and October,” said Robert Both, macro strategist at TD Securities.
“Even though not all details were as poor as the headline print, it will be hard for the BoC to look past more evidence of labour market deterioration,” he added.
Among the big five Canadian banks, only RBC expects a hold, which the bank said was dependent upon the inflation release just a day before the meeting.
Headline inflation has been within the central bank’s target range of 1% to 3% since January 2024, but core inflation has remained elevated.
“Even with weak real GDP momentum and further deterioration of labour market conditions, surveys show that Canadian CPI inflation is unlikely to fall significantly,” noted economists at Laurentian Bank Securities.
“This rules out a 50 basis point cut in a single meeting or a BoC terminal rate closer to 1.0%-1.5%,” they said.
An over-70% majority of economists, 23 of 32, predicted the BoC would lower rates by at least 50 basis points this year to 2.25% or lower, including six expecting 75 bps of cuts.
That was despite Canada remaining partly shielded from broad U.S. tariffs under the U.S.-Mexico-Canada Agreement.
Poll medians showed the key rate at 2.25% through next year.
“The Bank will likely want to see how much of a lift will be coming from fiscal measures, and if progress is made on extending the USMCA, 2.25% could be the trough for the policy rate,” said Avery Shenfeld, managing director and chief economist at CIBC Capital Markets.
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Mumal Rathorel; Editing by Joe Bavier)
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