Markets May Be Underpricing Probability of Bank of Canada Easing in September, Says National Bank

08:57 AM EDT, 08/14/2025 (MT Newswires) -- The Bank of Canada leaned against the narrative that its easing cycle was over at the late July rate decision, noted National Bank of Canada.

While the BoC held its policy rate steady for a third straight meeting, it made its dovish bias more explicit by stating "[if inflation is contained] there may be a need for a reduction in the policy interest rate."

This language wasn't featured in the June press release, so its inclusion suggests the Canadian central bank wants to emphasize that risks are still skewed to the downside, stated National Bank. While tariff relief (via USMCA exemptions) has shielded most exporters from significant pain, lingering uncertainty is likely to continue weighing on an economy already grappling with excess supply.

Importantly, July's weak employment report validated the bank's skepticism of June's reported strength. Cutting through the volatile month-to-month readings, Canadian employment has risen only about 5,000 per month since the U.S. presidency of Donald Trump, a sluggishness that should continue.

In National Bank's view, a lower policy rate is warranted, though the timing of further easing remains uncertain and will hinge on inflation data, with two consumer price index reports due before the next decision.

The bank's official forecast for a September cut isn't of the highest conviction, but it thinks markets may be underpricing the probability of easing at next month policy meeting.

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