Bets are high for another big cut by the Bank of Canada on Wednesday
The Bank of Canada is set to make its final policy rate decision of the year on Wednesday, with markets now betting the central bank will make another outsized cut of 50 basis points, bringing the rate down to 3.25 per cent.
“The November employment report effectively ended the debate around the Bank of Canada’s December 11 meeting,” said Benjamin Reitzes, economist with the Bank of Montreal, in a note last week. “Expectations are now firmly on 50 basis points, with market pricing skewed heavily in that direction.”
BMO and the Bank of Nova Scotia were two of the Big Six banks that changed their call to a steeper cut, after Statistics Canada reported the unemployment rate jumped to 6.8 per cent on Friday, the highest it’s been in almost eight years, excluding the pandemic.
The central bank made a 50-basis-point cut at its last meeting in October. At the time, governing council members cited softness in the labour market, concerns about economic growth and upside risks of inflation subsiding, as the main reasons for the larger move.
Toronto-Dominion Bank chief economist Beata Caranci thinks the Bank of Canada should not just focus on the job numbers but also consider other factors in the Canadian economy that are showing momentum, including an uptick in consumer spending last quarter and the rebound in housing market activity.
“I am not a fan of these 50-basis-point moves,” Caranci said. “I think there is less justification now than there was last month.”
In addition to the rise in the unemployment rate in November, GDP growth in the third quarter came in at one percent, below the central bank’s forecast of 1.5 per cent. Inflation hit two per cent in October, which is on target for the Bank of Canada, although measures of
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