The Bank of Canada just slashed rates by 50bps (to 3.25%) - as expected - and the second 50bps cut in a row as the central bank claimed growth looks weaker than expected... but they were careful to tamp down any exuberance over future cuts.

The bank said it cut by 50 basis points to “support growth and keep inflation close to the middle of the 1-3% target range,” citing inflation near 2%, excess supply, and softer-than-expected growth.

The decision was expected by markets and most economists in a Bloomberg survey.

Slightly hawkish shift in language...

Who's to blame for the slower growth? Trump and Immigration...

Donald Trump’s threat to impose 25% tariffs on Canadian exports to the US has “increased uncertainty and clouded the economic outlook,” the bank said.

“No one knows how this will play out in the months ahead — whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place,” Governor Tiff Macklem said.

Lower immigration targets mean GDP growth next year will likely be weaker than forecast in October, the bank said.

Inflation impacts will likely be muted as lower immigration reduces both demand and supply.

Additionally, the bank mentioned other government policies and said it won’t react to temporary effects, placing more emphasis on underlying trends in inflation. A temporary sales tax holiday will lower inflation to around 1.5% in January, but the effect should be unwound after mid-February.

BoC's Macklem says:

The Loonie strengthened on the BoC's move

Source: Bloomberg

Canadian stocks advanced, while bonds pared gains after BoC rate cut.