The Bank of Canada is expected to cut its overnight rate target another 25bp on Wednesday to 2.75%.
It’s quite likely that a pause would have been seriously considered if going on recent economic trends alone and after 200bp of cuts.
But easing 25bp to the mid-point of the BoC’s estimated neutral range of 2.25-3.25% appears the prudent choice (and 100% priced by OIS markets) given the context of an escalating US-Canada trade war that presents risks of both higher inflation and weaker growth.
With no Monetary Policy Report to be released, and no new guidance expected, most attention will be on the press conference which is likely to convey a cautious tone, reflecting Governor Macklem’s earlier warning that “we can’t lean against weaker output and higher inflation at the same time."