National Bank of Canada Analysts Predicted the Right Move
There was some uncertainty leading up to the decision, but both markets and economists were leaning towards the outcome that the National Bank of Canada analyst had predicted. The decision to cut rates was seen as the right move in light of the softer inflation and growth backdrop.
Economic Outlook and Rate Cuts
The Current Situation:
- The output gap is not expected to close until at least the fourth quarter, delaying slack absorption.
- Growth has been consistently below the Bank of Canada’s optimistic expectations for the past three months.
Future Projections:
If the economy continues to underperform, a 50 basis point rate cut in December is highly likely. However, if GDP growth picks up in line with the Bank’s projections, a return to 25 bp cuts could be justified.
Neutral Rate and Monetary Policy
The Bank of Canada estimates the neutral rate to be between 2.25% and 3.25%. A 50 bp cut in December would bring the overnight target rate to the upper end of that range. The Bank will continue to rely on data to make decisions and should consider returning to a more neutral policy stance.
Analysis of the Current Situation
Overall, the National Bank of Canada analyst’s prediction was accurate, and the decision to cut rates aligns with the economic outlook. It is crucial for policymakers to monitor economic data closely and adjust monetary policy accordingly to support growth and stability in the Canadian economy.