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Jun 05 - 10:55 AM

CIBC's Reaction's to BoC's Rate Cut: We Expect 3 More Cuts this Year

By eFXdata  —  Jun 05 - 10:07 AM

Synopsis:

CIBC provides insights into the Bank of Canada's (BoC) recent decision to cut its overnight rate by 25 basis points to 4.75%. This analysis discusses the rationale behind the decision, the central bank's current economic outlook, and the implications for future monetary policy.

Key Points:

  1. Reason for Rate Cut: The BoC's decision was driven by a deceleration in core inflation and subdued economic growth. The easing of inflationary pressures provided the central bank with a suitable environment to begin reducing the interest rate.

  2. BoC's Statement Analysis: The BoC noted that inflationary pressures were returning to historical averages and expressed increased confidence that inflation would continue to converge towards the target. This acknowledgment has set the stage for potential further rate reductions.

  3. Market Reaction and Future Expectations: Despite the rate cut being largely anticipated by financial markets, the Canadian dollar and long-term rates fell, reflecting a dovish interpretation of the BoC's comments. CIBC forecasts that the BoC will implement a further 25 basis point cut in July and anticipates a total of three additional cuts by the end of the year.

Conclusion:

CIBC underscores that while today's rate cut by the BoC was expected, the dovish tone of the announcement has led to adjustments in market expectations regarding the path of future rate cuts. The bank’s ongoing commitment to data-dependent decisions suggests that the monetary policy outlook could remain flexible, adjusting to incoming economic indicators.

Source:
CIBC Research/Market Commentary

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