As widely expected, the Bank of Canada lowered its target for the overnight rate by 25 basis points to 3.0%. This sixth consecutive cut brings cumulative rate relief to 200 basis points since June 2024 and pushes the BoC’s overnight target 150 bps below the Fed’s. The last time this gap was larger was way back in 1997. Note that the Bank will also be setting the deposit rate 5 bps below the target, a move designed to relieve some of the upward pressure on CORRA. Consistent with Toni Gravelle’s speech earlier this month, the Bank announced an end to QT with asset purchases (term repos) starting in early March. Initial term repo sizes will range between $2 billion and $5 billion. Here are some additional highlights from the communique and the opening statement to the press conference:

• Driving the decision to cut 25 bps was inflation around 2% and an economy in excess supply.
• As for forward rate guidance, you really won’t find any. The opening statement to the presser simply acknowledges the tightrope they’ll be walking: “We will need to carefully assess the downward pressure on inflation from weakness in the economy, and weigh that against the upward pressure on inflation from higher input prices and supply chain disruptions”.
• Absent tariff action, the BoC expects GDP growth to strengthen in 2025 (vs. 2024) with growth a bit above potential this year. Again, ignoring tariff threats, upside and downside risks are “reasonably balanced”.
• As for the labour market, the statement reiterates that “Canada’s labour market remains soft” although they acknowledge job growth is picking up. On wage growth, they see “some signs of easing”.
• The Bank highlights that headline inflation is close to 2% with some volatility associated with the GST/HST holiday. Highlighting a “broad range of indicators” they note that underlying inflation is also close to 2% and is forecast to stay there over the next two years (absent tariffs). Note that the relatively hotter CPI-Median and -Trim weren’t mentioned.
• As for recent Canadian dollar weakness, the rate statement attributes it mostly to trade uncertainty and broader strength in the USD. In other words, it’s less to do with BoC-Fed ‘divergence’.

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