CIBC: It would take a major turn of events to stop another 50 bps Bank of Canda cut in Dec

CIBC thinks the Bank of Canada will cut rates by 50 basis points again in December.

“With the current 3.75% rate still in restrictive territory, it would take a major turn of events to stand in the
way of another 50 basis point reduction in December,” writes CIBC chief economist Avery Shenfeld.

CIBC believes the Bank of Canada is needlessly above neutral at a time when the economy is clearly slowing. They also take issue with the idea that housing will be a source of strength in the economy next year.

The expectation for growth to average 2.2% over the next two years, little changed from the prior forecast,
doesn’t stand in the way of further interest rate cuts, as the improved outlook is tied to easing monetary conditions.
Our own forecast is less optimistic than the Bank’s for 2025, with more of a pickup in 2026 to reach roughly the same
end point. Both projections rely on a rebound in consumer spending per capita, after a long run of softness. But
CIBC’s forecast sees more of the housing acceleration delayed until 2026, with multiple unit starts in 2025 likely held
back by weak preconstruction sales this year. We are pencilling in more of a slowdown in labour force growth, but our
projections offset that by allowing for a greater rebound in productivity after two years of outright declines.

Macklem offered little guidance in the way of what’s coming for December, saying that they were data dependent. The market is pricing in just a 6% chance of another jumbo cut but I expect that to rise with a major Canadian bank forecasting another 50 bps.

USD/CAD rose to the highest since early August today but has backed off.

This article was written by Adam Button at www.forexlive.com.