- Bank of Canada overnight rate was 4.50% before the decision
- Markets were pricing in a 76% chance of a 25 bps cut and 24% chance of 50 bps
- In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed.
- Inflation in US and European regions continues to moderate
- Preliminary indicators suggest that economic activity was soft through June and July
- The labour market continues to slow
- Wage growth remains elevated relative to productivity
- High shelter price inflation is still the biggest contributor to total inflation but is starting to slow
- Macklem will hold a press conference at 10:30 am ET, but the opening statement was released with the BOC statement
Key line:
Excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. Governing Council is carefully assessing these opposing forces on inflation.
USD/CAD was trading at 1.3546 ahead of the decision and is trading at 1.3542 shortly afterwards.
The opening statement from Macklem highlighted a meeting-by-meeting approach:
- Headline and core inflation have continued to ease as expected
- As inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target
- Overall weakness in the economy continues to pull inflation down. But price pressures in shelter and some other services are holding inflation up.
- If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate
- We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time
- Our July projection has growth strengthening further in the second half of this year. Recent indicators suggest there is some downside risk to this pickup
- Business layoffs remain moderate, but hiring has been weak
- With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much
Reading through the comments, the Bank of Canada sounds reluctant to look forward and forecast what's coming next. Instead, they're going to take decisions as the data comes in. This risks leaving them behind the curve.