BMO on Bank of Canada's Neutral Rate Range

09:12 AM EDT, 09/18/2025 (MT Newswires) -- The Bank of Canada's 25bps cut to 2.50% on Wednesday takes the overnight rate just below the mid-point of the official neutral range (2.25%-to-3.25%), said Bank of Montreal (BMO).

It also brings the rate in line with the BoC's view on underlying inflation, and very close to the consumer price index excluding food & energy (2.4% year over year now), noted the bank.

According to BMO, here are a few points on whether this can be considered some kind of equilibrium:

-- 1. Rates are almost never right on top of core inflation.

They have both been far above core and sometimes well below, but almost never in sync.

-- 2. The bank suspects that rates won't stay here, with the

BoC likely to cut further in the months ahead -- official call is two more cuts to 2.0%.

-- 3. It's not clear that the neutral range is stable. BMO suspects that the BoC could clip that range next year by 25bps, in part due to milder potential gross domestic product on much slower population growth.

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