Synopsis:

CIBC notes that while the Bank of Canada delivered a 25bp rate cut as expected, uncertainty remains about the path ahead, particularly with the potential impact of tariffs and the unclear neutral rate level.

Key Points:

1. BoC Cuts Rates but Maintains Uncertainty:

   • The overnight rate now stands at 3%, with a technical adjustment to the deposit rate at 2.95%.
   • Growth projections were revised slightly lower, but this was offset by downward adjustments to potential output and population growth.

2. Further Easing Expected:

   • CIBC sees rates, including 5-year mortgage rates, as still too high to deliver the necessary economic lift.
   • Given a "soft" labor market and underlying inflation near 2%, CIBC expects an additional 75bps in rate cuts.

3. Trade War and Inflation Considerations:

   • The BoC is conducting a major research effort on the potential impact of tariffs.
   • Like CIBC, the BoC appears to view a trade war as having a temporary inflationary impact but posing a material downside risk to growth, which is not yet factored into forecasts.

Conclusion:

The BoC is cautious about further rate cuts but acknowledges downside risks, especially from tariffs. CIBC maintains a dovish stance, expecting an additional 75bps of easing as the economy remains fragile.