Bank of Canada Signals Reluctance for Further Rate Cuts After Wednesday's Reduction, Says CIBC

10:18 AM EDT, 10/29/2025 (MT Newswires) -- The Bank of Canada cut interest rates by 25bps as expected on Wednesday, but signaled a reluctance to cut further unless the economic outlook deteriorates, said CIBC.

The quarter-point cut, bringing the overnight rate down to 2.25%, was widely expected by forecasters and financial markets, noted the bank.

However, the accompanying statement said that Governing Council sees the new policy rate as at "about the right level" to keep inflation at 2% while also helping the economy through a period of structural change, suggesting a willingness to respond only if the "outlook changes."

In terms of that outlook, the accompanying Monetary Policy Report returned to providing one base case forecast, although risks around this are obviously even higher than normal and depending on how trade negotiations with the United States play out, stated CIBC.

The forecast for 1.2% gross domestic product growth this year, 1.1% in 2026 and 1.6% in 2027 is made under the assumption that the effective tariff rate on Canadian goods from the U.S. is about 6%, up from around 4.5% a quarter ago, pointed out the bank.

The statement suggested that excess capacity in the economy would persist in the near term and be taken up gradually after, with the current estimate for the output gap being between -0.5% and -1.5%, added CIBC.

Following Wednesday's cut, the BoC appears to be moving back onto the sidelines to assess incoming data, the potential impact of next week's federal government budget and the progression of trade discussions, according to the bank.

On CIBC's base case assumptions that the economy starts to gradually recover, and that a trade deal is reached to lower some sectoral tariffs and reduce uncertainty surrounding CUSMA, Wednesday's move would be the final one.

However, further cuts would certainly be justified if the economy continues to weaken and/or if the outlook for trade doesn't improve, concluded the bank.

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