MNI BoC Review-April 2025: "The Situation Is No Clearer"

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• The Bank of Canada held rates in April for the first time in 8 meetings, leaving the overnight rate at 2.75%. The decision was a partial surprise, with markets having priced in a 30-40% probability of a 25bp cut (and a similarly proportioned split among analysts), but was in line with the MNI Markets Team’s expectations.
• The BOC hold may not have been fully priced, but the decision made almost no difference to market perceptions of the path of rates for the rest of the year - befitting the BOC's communications which revealed little new in terms of its preferences for easing at an upcoming meeting amid major tariff-related uncertainty.
• The decision statement pointed to a weaker backdrop for economic activity, with uncertainty over trade starting to spill over into the labour market, and re-emphasized the need to contain any lingering inflationary pressures from tariffs, concluding that “Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians.”
• Forward guidance remains elusive, and as Governor Macklem put it in his opening statement to the press conference, the BOC doesn’t “know what's coming next, and US policy could well move back and forth before the situation is clearer."
• In this vein, the latest Monetary Policy Report unusually didn’t have a central forecast, instead laying out two scenarios for the Canadian economy in the context of a US/global trade conflict - one more benign and the other more severe.
• Either way, the expected path ahead looks more inflationary with slower growth than had previously been forecast – making for a more complicated (and hesitant) policy reaction.
• Another two to three 25bp cuts remain broadly expected at some point by end-2025, and we didn’t see any changes to analysts’ expected terminal rates which hover around 2.00 / 2.25% with a range of 1.50-2.75%.
• There is a better than 50% implied probability of a June cut. For now, the BOC will wait for greater clarity before deciding to make its next move, and it’s unclear when such clarity will arrive.