Picton Investments Says Bank of Canada's 25-Basis-Point Cut Matches Expectations, Sees Rates Trending Toward 2%

10:52 AM EDT, 10/29/2025 (MT Newswires) -- The Bank of Canada cut the overnight rate by 25 bps on Wednesday, entirely in line with market-priced expectations, said Geoff Phipps, portfolio manager and trading strategist at Picton Investments.

Markets have now priced just "modest" probabilities for December 2025 and January 2026 rate cuts, noted Phipps.

In the updated Monetary Policy Report released also on Wednesday, the BoC resumed its base-case projections, which framed a slow growth outlook for the rest of 2025. Overall, Phips stated the outlook was rather "sombre": increased slack in the labor market, declining population growth, decelerating wage growth, weak business investment and fading momentum in core inflation.

This is a "fair" assessment, given the September Canadian consumer price index print released on Oct. 21 on the surface looked a little hot versus expectations, but a deeper analysis tells a different story: gasoline prices contributed to the higher print, but prices at the pump are down materially since September. Food pricing was another hot spot in the last CPI report, but Canada's backing off of retaliatory tariffs likely has alleviated some food pricing pressure.

Overall, the breadth of pricing pressure within the Canadian economy has abated, and there doesn't appear to be a meaningful change in the underlying trend of goods inflation, pointed out the Picton Investments portfolio manager.

In short, Phipps expects the BoC to cut toward a 2% rate, which may be close to the terminal rate, absent a severe recession or major liquidity event. Canada's central bank continues to flag opposing inflation forces: tariff and trade restructuring impacts versus excess supply and weak growth.

The BoC ended its outlook summary, commenting that monetary policy cannot offset the implications of tariffs or other structural changes. As has been discussed by other central banks, a move to greater emphasis on global fiscal policy dulls the effectiveness of the monetary toolkit, according to Phipps.

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