IG Wealth, Mackenzie Investments, major banks share their insights
Right up until the Bank of Canada announced its decision to hold interest rates at 2.75% on Wednesday, it was too close to call, certainly with any consensus. But what about its next move?
Leading strategists and economists have been sharing their insights and opinions on whether governor Tiff Macklem and his team made the right decision, and what they might already be considering for upcoming rate announcements.
Philip Petursson, chief investment strategist at IG Wealth Management, was not surprised by the pause on rate cuts and said the dovish tone of the BoC’s statement acknowledges weakness in the economy and the need to act at the appropriate time. He told WP that the central bank’s tone suggest that domestic factors are perhaps secondary to monetary policy given the economic risks from US tariffs.
“The Bank is walking a tightrope: on the one hand, the statement outlines a scenario with a slowdown that puts the brakes on demand, and therefore inflation. On the other, it raises the spectre of higher input costs (tariffs, supply chains) that risk pushing inflation back up. In short, the two forces are clashing, and the Bank is trying not to get caught up in them. In our view, this fear is unwarranted as inflation in Canada remains driven by shelter costs and not actual overheating,” Petursson said.
He stressed that the BoC is not likely to lower rates while the tariff impact is known.
At Mackenzie Investments, chief investment strategist in the fixed income team, Dustin Reid, also noted the BoC’s reluctance to change rates while the uncertainty around tariffs remains.
“In its Monetary Policy Report, the BoC provided two risk scenarios with the first seeing high ongoing uncertainty, but limited tariffs, while the second scenario sees a protracted trade war causing Canada’s economy to go into recession. Although to differentiating degrees, both scenarios paint pictures of downside growth risks, with some upside risks to inflation and perhaps underlying why the BoC opted to hold rates today,” he told WP, adding that the team expect rates to fall by at least 25-50 basis points by year end.
CIBC Economics’ Katherine Judge also expects cuts due to a softer economy resulting from US trade policy.
“We expect the negative demand impact from higher unemployment due to tariffs and the deterioration in sentiment since March to be more worrisome for the BoC than temporary upward pressure on prices from tariffs ahead, and we continue to look for the overnight rate to reach a trough of 2.25%,” her commentary stated.
At RBC Economics, Claire Fan highlighted the BoC’s opinion that prices will continue to rise as a result of tariffs, although the end of the carbon tax will offset some of the pressure.
“The concern is not that prices will rise, but that they will continue to rise faster beyond what’s warranted by tariffs, or in other words, ongoing inflation. There’s no good telltale sign for that outside of reports of businesses’ pricing behavior as well as consumer inflation expectations – elevated expectations could allow high inflation to persist,” Fan wrote in a commentary.
