Bank of Canada's Open Bias Sets A High Bar Against Back-to-Back Rate Reductions, Says Scotiabank

12:36 PM EDT, 09/17/2025 (MT Newswires) -- The Bank of Canada cut its overnight rate by 25bps to 2.0% on Wednesday, as widely expected by almost all and basically fully priced going in, said Scotiabank.

There was a mildly hawkish response in market rates, perhaps due to the issues surrounding the bias, but it was also correlated with simultaneous movement in United States yields, which is why USD/CAD simply danced sideways ahead of the FOMC.

Key, however, is a significant question mark around the forward bias -- if any, wrote the bank in a note to clients. It may signal that there is a high bar to following up with another cut at the Oct. 29 decision versus perhaps a cut-pause framework as advised going in.

The odds of being done after just one cut are pretty low in Scotiabank's view, given the overall tone of the rest of the statement.

The overall bias, however, was careful, cagey, noncommittal, and spoken in riddles -- and as such very much in keeping with Governor Tiff Macklem's style that rarely holds the market's hand. The bank's forecast remains for one more 25bps cut in Q4, but exactly when will be informed by data and developments.

The issue is that the last statement said:

"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."

Since it's such a short statement -- at least compared with the prior one -- why not just repeat a variation of that line to keep the bias open? Unless they are less sure now, pointed out the bank.

The BoC doesn't necessarily always think through wording shifts as carefully as it perhaps should, so maybe it's nothing.

Or maybe the Governing Council felt no need to repeat any such bias since markets are already leaning in the direction of another cut or more and not in need of a jolt.

It may also be that not repeating that line is also a signal that the BoC doesn't have confidence to go in a straight line but wants considerably more data. That was the 2015 playbook when former Governor Stephen Poloz cut, skipped a rope behind the scenes, and then cut again.

In addition, when you're at the fine-tuning stages of monetary policy, when you've already come down to basically a zero real policy rate and well inside its estimates of neutral, you can take more time, require more evidence, barring clearer and bigger shocks ahead, especially as trade and fiscal policy are very much up in the air.

Overall, Scotiabank still likes another cut this year and sees nothing obvious here that it has signalled against that view, but at least October relative to December seems a bit "richly priced imo" based on current information.

That's not enough to hang an October pause call on, added the bank.

October meeting pricing might also be too rich because of frequent references to the federal Budget on November 4 -- after the next BoC decision on Oct. 29, when it next issues a full forecast update.

Further, Governor Macklem's opening remarks to his presser indicated high uncertainty about the path forward for cost and price pressures:

"Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. "

The governor expanded on this uncertainty in his press conference.

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