We at FinancialMediaGuide note that the Bank of Canada is widely expected to deliver a second consecutive rate cut this week amid an economic slowdown and rising joblessness. Canada’s economy contracted by 1.6% in the second quarter as U.S. tariffs on steel, autos, and lumber imports weakened domestic demand and employment.
According to our analysts at FinancialMediaGuide, trade negotiations between Ottawa and Washington were suspended after U.S. President Donald Trump announced a halt to discussions. Early estimates indicate that the Canadian economy may barely avoid another contraction in the third quarter, while business surveys point to weak demand, low order volumes, and cautious hiring by companies.
In his September policy statement, Bank of Canada Governor Tiff Macklem said the central bank is prepared to cut rates again if risks to the economy increase and inflation remains under control. We at FinancialMediaGuide believe that a combination of weak domestic demand, trade pressure, and labor market softening provides grounds for another 25-basis-point cut – bringing the rate down to 2.25%, the lower end of the so-called “neutral” range.
Most economists surveyed by FinancialMediaGuide also expect a rate cut, with forecasts showing the policy rate likely to remain at 2.25% through the end of next year. Futures markets are pricing in an 82% probability of a cut. We at FinancialMediaGuide emphasize that while such a move could support business activity, it may also increase pressure on inflation, which has already exceeded 3% on core measures.
Although the consumer price index rose to 2.3% in September, some economists, including Pedro Antunes of the Conference Board of Canada, urge caution and argue that holding rates steady would preserve the central bank’s flexibility for future interventions should conditions deteriorate.
Our analysts at Financial Media Guide stress that the Bank of Canada is facing a delicate balancing act – containing inflation while preventing the economy from slipping into recession. The decision expected on October 29 will serve as a key signal for the direction of the country’s monetary policy in the coming quarters.
Earlier, we wrote that Carrefour faces slower growth in France and Brazil – can price cuts sustain momentum?.
