MNI BoC Review-June 2025: Proceeding Carefully

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• The Bank of Canada held rates in June for the second consecutive meeting at 2.75%, in line with the MNI Markets Team’s expectation and the broad consensus, though defying some market and analyst expectations for a cut.
• There was a very slight shift in implied market pricing for further 2025 BOC cuts after the decision, but basically unchanged despite the decent implied probability of a cut.
• Cumulative pricing through the July meeting points to 13bp of cuts through that point (2.61% implied OIS rate, vs 2.59% just before the decision). September retains the first full cumulative cut pricing (2.50%, roughly unchanged vs pre-decision), with end-year rates at 2.37% (unch vs pre-decision).
• Indeed pricing through end-2025 did not really shift much through either the decision or the press conference, with the BOC reinforcing the message that it was less forward-looking than usual in setting policy given elevated uncertainty amid the US-Canada trade conflict. As such, the policy statement notes that Governing Council is “proceeding carefully”.
• The communications leaned slightly hawkish, keeping the door open to a cut but not emphatically.
• The data simply didn’t make a compelling enough case to cut rates, with "firmness in recent inflation data" (Gov Macklem would later note firm core CPI for April “has got our attention”) and "softer but not sharply weaker" economic activity.
• Mirroring the limited movement in market rates, we didn’t see any changes in analysts’ outlooks for the rest of the easing cycle. Most analysts expect either one or two 25bp cuts ahead, with the next meeting on July 30 being very much “live” and accompanied by what BOC leadership hopes will be a conventional central forecast instead of scenario-based, as the tariff picture becomes clearer.
• A cut at that point remains a 50/50 proposition per market pricing. As Macklem acknowledged, they will be looking at two inflation reports between now and then (Jun 24 and Jul 15); they will also get one GDP report (Jun 27, for April / prelim May), and a quarterly Business Outlook report (Jul 21). The first port of call is Friday’s employment report for May, with a second to come on Jul 11.