Ahead of the decision, the market was pricing in a 92% chance of a cut and a 72% chance of a further cut by March. This brings the overnight rate to 2.25% from 2.50%.
Highlights:
- Statement says current policy rate is "about the right level"
- Rate cut was because of economic weakness and expectation that inflation will remain close to 2%
- If the outlook changes we are prepared to respond
- Canadian labor market remains soft, excess capacity in the economy is expected to persist and be taken up gradually
- Preferred measures of inflation have been sticky near 3%
- Underlying indicators show inflation around 2.5%
- Expects inflation pressures to ease in the months ahead
Macklem said the rate cut was to support the economy through adjustments to US trade policy and noted there continues to be considerable uncertainty.
USD/CAD was trading at 1.3928 ahead of the decision and 1.3922 shortly afterwards.
Here are how the key forecasts changed from the January MPR:
GDP forecasts:
Q3 GDP seen at 0.5% annualized, Q4 seen at 1.0%
2025 1.2% vs 1.8% prior
2026 1.1% vs 1.8% prior
2027 1.6%
The BOC said that by the end of 2026, it expects GDP to be about 1.5% lower than forecast in January
Inflation (CPI)
2025 2.0% vs 2.4% prior
2026 2.2% vs 2.1% prior
2027 1.6%
International forecasts
United States (prior):
2025 2.1 (2.6)
2026 2.2 (2.3)
2027 2.1
Euro Area:
2025 1.2 (0.8)
2026 1.0 (1.3)
2027 1.5
China:
2025 4.9 (4.9)
2026 4.4 (4.1)
2027 4.1
World:
2025 3.2 (3.1)
2026 2.9 (3.1)
2027 3.0
Domestically, the revised forecasts show a smaller contribution from housing and a bigger drag from business fixed investment along with exports but that's slightly balanced by higher assumptions of government contributions.
