Preview of the December Bank of Canada (BOC) meeting
2024-12-11
■ At the December Governing Council, a rate cut was seen as a certainty, with market attention focused on the magnitude of the cut.
■ Depending on economic and inflation trends, the rate cut is expected to be 25bp or 50bp, and the policy direction of further rate cuts next year will remain unchanged.
The Bank of Canada (BOC) is expected to announce its interest rate decision at its last Governing Council meeting of the year on December 11. The market generally expects that the fifth consecutive rate cut has been priced in advance by financial markets, with attention focused on the magnitude of the rate cut. As of the time of writing, the market expects a continuation of the 50bp rate cut of the October Governing Council. However, the possibility of a 25bp rate cut cannot be completely ruled out.
At the previous Governing Council meeting in October, the BOC statement mentioned that "if the economic performance is in line with the latest forecasts, the policy rate will be further reduced," and recent developments around the Canadian economy have further prompted the market to expect further rate cuts in the future. On November 26, BOC Deputy Governor Mendes reiterated this point of view. In addition, the annualized real GDP growth rate in the third quarter, released on November 29, was only 1.0%, lower than the BOC's forecast in October (1.5%). As a result, financial market expectations for a more significant rate cut quickly heated up.
The November employment data released on December 6 showed that the unemployment rate did reach 6.8%, the highest level since January 2017 (excluding data during the COVID-19 pandemic), and the Canadian dollar weakened further in the foreign exchange market. However, the net new employment, mainly full-time jobs, increased by 50,500 from the previous month, and the growth rate accelerated. This is partly due to the improvement in the labor participation rate, and whether it can become a clear rebound in the future remains to be seen. At the same time, the inflation rate showed signs of stopping falling, which may soften the BOC's interest rate cut policy. In terms of inflation, the October Consumer Price Index (CPI) released on November 19 showed that the year-on-year growth rates of the overall CPI, median CPI, and trimmed mean CPI were 2.0%, 2.5%, and 2.6%, respectively, ending the downward trend before September, and the growth rate rebounded slightly. Currently, the Canadian dollar has hit its lowest level against the U.S. dollar since April 2020, and the impact of the depreciation of the Canadian dollar on domestic inflationary pressure through import prices has also become a problem that needs attention.
Overall, the BOC is expected to continue to cut interest rates to its estimated neutral interest rate range of "2.25%-3.25%". Therefore, for the BOC, the extent of this rate cut may not be a significant problem. However, for the Trudeau government, which is in power in a challenging environment, it is hoped that the BOC will support the economy by implementing a 50 basis point rate cut. It should be pointed out that there is no sign of the government exerting pressure on the BOC in monetary policy decisions.
■ Depending on economic and inflation trends, the rate cut is expected to be 25bp or 50bp, and the policy direction of further rate cuts next year will remain unchanged.
The Bank of Canada (BOC) is expected to announce its interest rate decision at its last Governing Council meeting of the year on December 11. The market generally expects that the fifth consecutive rate cut has been priced in advance by financial markets, with attention focused on the magnitude of the rate cut. As of the time of writing, the market expects a continuation of the 50bp rate cut of the October Governing Council. However, the possibility of a 25bp rate cut cannot be completely ruled out.
At the previous Governing Council meeting in October, the BOC statement mentioned that "if the economic performance is in line with the latest forecasts, the policy rate will be further reduced," and recent developments around the Canadian economy have further prompted the market to expect further rate cuts in the future. On November 26, BOC Deputy Governor Mendes reiterated this point of view. In addition, the annualized real GDP growth rate in the third quarter, released on November 29, was only 1.0%, lower than the BOC's forecast in October (1.5%). As a result, financial market expectations for a more significant rate cut quickly heated up.
The November employment data released on December 6 showed that the unemployment rate did reach 6.8%, the highest level since January 2017 (excluding data during the COVID-19 pandemic), and the Canadian dollar weakened further in the foreign exchange market. However, the net new employment, mainly full-time jobs, increased by 50,500 from the previous month, and the growth rate accelerated. This is partly due to the improvement in the labor participation rate, and whether it can become a clear rebound in the future remains to be seen. At the same time, the inflation rate showed signs of stopping falling, which may soften the BOC's interest rate cut policy. In terms of inflation, the October Consumer Price Index (CPI) released on November 19 showed that the year-on-year growth rates of the overall CPI, median CPI, and trimmed mean CPI were 2.0%, 2.5%, and 2.6%, respectively, ending the downward trend before September, and the growth rate rebounded slightly. Currently, the Canadian dollar has hit its lowest level against the U.S. dollar since April 2020, and the impact of the depreciation of the Canadian dollar on domestic inflationary pressure through import prices has also become a problem that needs attention.
Overall, the BOC is expected to continue to cut interest rates to its estimated neutral interest rate range of "2.25%-3.25%". Therefore, for the BOC, the extent of this rate cut may not be a significant problem. However, for the Trudeau government, which is in power in a challenging environment, it is hoped that the BOC will support the economy by implementing a 50 basis point rate cut. It should be pointed out that there is no sign of the government exerting pressure on the BOC in monetary policy decisions.