Wednesday's Bank of Canada Rate Cut Shouldn't Be The Last One, Says ING

11:55 AM EDT, 09/17/2025 (MT Newswires) -- The Bank of Canada delivered a widely expected 25bps rate cut on Wednesday, adding very little in terms of forward guidance, said ING.

With the policy rate at 2.50%, a full 175bps above the Federal Reserve's, assuming a 25bps rate cut in the United States later Wednesday, it's understandable that the BoC isn't willing to commit to more easing, but the overall assessment of economic and inflation risks suggests this isn't the last cut of the cycle, wrote the bank in a note.

On inflation, Governor Tiff Macklem noted that Canada's decision to lift some retaliatory tariffs against the U.S. has reduced price pressure, and that "recent data suggest the upward pressures on underlying inflation have diminished."

On growth, the picture remains "grim," with the BoC outlining the different sectoral negative impact of tariffs today and reporting that many businesses have paused investment plans due to uncertainty.

The jobs market deterioration remains, in ING's view, the most compelling argument for cutting more at this stage. The BoC is expecting job losses to spill into softer household spending in the coming months, erasing the resilience in consumption numbers seen of late. The BoC is highlighting that, aside from "significant" job losses in U.S. trade-sensitive sectors, there has been a considerable slowdown in hiring in other sectors.

Despite a relatively quiet period in U.S.-Canada trade news, the -- probably "rocky" -- USMCA renegotiation is up next. That is the agreement that is preventing Canada from facing the worst of reciprocal U.S. tariffs, and any threat of the U.S. withdrawing from the deal can significantly add to business uncertainty and further harm the jobs market, stated the bank.

The bank thinks the conditions for another cut in December are all there, with risks skewed to an even earlier move in October. For now, ING sees that as the last cut of the cycle, but the bank cannot fully rule out more easing at this stage, given lingering trade-associated risks.

Markets are pricing in 13bps for October, 21bps for December and no more cuts afterwards. The bank thinks risks are on the dovish side relative to this pricing, even if it currently matches its baseline forecast.

ING has been on the bearish side of the Canadian dollar (CAD or loonie) against most of the G10 currencies and the bank retains that view, even though US dollar (USD) weakness should keep USD/CAD upside capped.

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