BOC: October Deliberations Showed Wait-And-See Option Debated

The BOC's October meeting deliberations (link) make it clear that Governing Council weighed holding rates rather than taking their eventual decision to cut by 25bp on Oct 29. While the previous meetings' cuts also saw a hold-and-wait vs ease debate, October's decision was accompanied by a fairly clear signal that it was foreseen as the last 25bp reduction in the cycle.

• There's no discernable impact on BOC market-implied rates, with a December cut seen with almost no chance of occurring (<5%) after October's strong labour force numbers, and just 10bp of total reductions seen to the bottom of the cycle (mid-year 2026).
• Key passages from the deliberations:
• "Governing Council agreed that a further reduction of 25 basis points would be warranted in October or a subsequent meeting given that the economy is anticipated to be weak and inflation is expected to remain close to the 2% target. This would bring the policy interest rate to the lower end of the Bank’s estimated range of the neutral rate, putting the policy rate on the stimulative side of the range."
• "While members agreed that a cut to the policy interest rate would be needed, they had a range of views about the timing of the cut. Waiting to cut the policy rate at a future meeting would provide Governing Council with more information on the economy, including the extent of weakness in the labour market, input cost pressures and the recent persistence of underlying inflation. It would also provide more information on US trade policy developments and federal fiscal policy."
• "However, with continued excess supply, labour market weakness, tepid growth expected in the second half of the year and inflation projected to stay close to the target, the arguments for cutting the policy rate in October were considered more salient. Governing Council therefore agreed at this meeting to cut the policy interest rate by a further 25 basis points to 2.25%."
• "Governing Council members also agreed that monetary policy was likely close to the limits of what it could do to support the economy in the current circumstances. They agreed that to be as clear as possible, they should communicate that, based on their outlook, they believe the current policy rate is at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. Members wanted to underline that this assessment was contingent on inflation and economic activity evolving broadly in line with the October projection."
• "developments gave Governing Council members confidence that they could now be more forward-looking."
• On inflation, Governing Council saw "choppiness" ahead: "Members acknowledged that year-over-year inflation would be choppy in the coming months due to base-year effects from the GST/HST holiday on some items at the end of 2024 through early 2025 and the elimination of the consumer carbon tax in April 2025. Members would be looking through this choppiness and watching indicators of underlying inflation for signals about the trend of total inflation. Members expected shelter price inflation and inflation in goods prices excluding energy to moderate. Excess supply in the economy was anticipated to put downward pressure on inflation. However, this would be offset by increased cost pressures linked to tariffs and the reconfiguration of trade. Given these offsetting forces, Governing Council expected CPI inflation to remain close to 2% over the projection horizon."
• That said, "Members agreed that the labour market was soft" albeit that was before October's jobs data.