Desjardins Sees High Bar for Further Bank of Canada Cuts After 25-Basis-Point Reduction to Support Weak Economy

10:31 AM EDT, 10/29/2025 (MT Newswires) -- The Bank of Canada lowered its policy rate another 25 basis points on Wednesday to support the ailing economy, but signaled there's a high bar for further action, said Desjardins.

That's not because policymakers believe that the Canadian economy will return to full health anytime soon, noted the bank. The BoC governor suggested that slack will only be absorbed gradually.

That said, in the BoC's view, monetary policy only has a limited role in supporting the difficult transition facing the economy, given that the structural damage will reduce capacity and add costs.

The statement accompanying the rate decision was explicit that, if growth and inflation evolve in line with the central bank's latest projections, the Governing Council is comfortable leaving the policy rate unchanged at the current 2.25%.

The BoC's gross domestic product projections are relatively tame, meaning that it would take a prolonged period of weakness or a new shock for central bankers to move off the sidelines, stated Desjardins.

As a result, while the bank still sees the risks to the economy and inflation as skewed to the downside, its base case no longer assumes the BoC will reduce its policy rate any further.

Government of Canada bond yields are higher after the announcement, but the move is seemingly being limited by the uncertainty facing the economy, added Desjardins. In Governor Tiff Macklem's words, "If the outlook changes, we are prepared to respond."

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