For the second time in as many meetings, the Bank of Canada lowered the target for the overnight rate by 25 basis points, a decision in line with the consensus and market expectations. The rate reduction brings the policy rate to 4.50%, fully unwinding the two rate hikes delivered in June and July 2023. This move also pushes the BoC’s policy rate 100 bps below the Federal Reserve’s (based on the upper bound target), marking the largest negative gap since the late 1990s. Despite the consecutive cuts and upward pressure on CORRA, balance sheet normalization will continue (as expected). Here are additional highlights from the communique and the opening statement to the press conference:

• Driving the decision to cut was “broad price pressures continuing to ease” and “ongoing excess supply lowering inflationary pressures”.
• Once again, there wasn’t really any forward rate guidance in the press release but the opening statement to the presser reiterated that “it is reasonable to expect further cuts” if inflation eases in line with their forecast. He added that “downside risks are taking on increased weight in our monetary policy deliberations”. Note that the statement dropped the focus items that they’d previously been referring to (i.e., the balance between demand and supply, inflation expectations, wage growth, and corporate pricing behaviour). Instead, “incoming information” will guide future decisions.
• The statement notes that excess supply is growing: “With robust population growth of about 3%, the economy’s potential output is still growing faster than GDP, which means excess supply has increased.”
• On the labour market, they highlight that “there are signs of slack” with labour force growth outpacing employment and job seekers having more trouble finding work. “Wage growth is showing some signs of moderating but remains elevated.”
• As for inflation, the statement notes that “broad inflationary pressures are easing” although shelter and some services inflation remains elevated. “Governing Council is carefully assessing these opposing forces on inflation”.

https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/boc-policy-monitor.pdf