From National Bank of Canada

In the first rate decision with material uncertainty in a year, the BoC opted lower the target for the overnight rate by 25 basis points, a decision in line with market expectations and the consensus forecast. This makes the BoC the first G7 central bank to ease policy this year, though the ECB is widely expected to follow suit tomorrow. Citing clear progress in core inflation, in addition to ongoing sub-potential growth and a rebalancing labour market, the press release noted “monetary policy no longer needs to be as restrictive”.

The focus now turns to the pacing of cuts in this nascent easing cycle. In the opening statement to the presser, Macklem said it’s reasonable to expect further easing as long as inflation continues to ease. That puts a July cut squarely in focus and we’d be inclined to bet they will ease again at the next meeting. At the same time, we’d note that earlier BoC communications indicated that monetary policy easing this year would be “gradual”. Macklem confirmed this view in the press conference. So although back-to-back cuts may be instituted to start, we’re skeptical they’ll continue at the same pace thereafter. We agree with market expectations that 50 basis points of additional rate relief is appropriate in 2024. In contrast, the consensus sees this marking the start of a more aggressive easing campaign. The median expectation is for a 4% policy rate by year-end. Three more cuts over the last four decisions of the year, isn’t a pace of cuts we would characterize as gradual and isn’t as likely to materialize barring a more material slowdown in the economy.

The Bank’s next decision will take place on July 24th. The Summary of Deliberations for today’s decision will be released on June 19th.

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