Bank of Canada Isn't Done Yet With Easing Despite This Week's Guidance, Says Rosenberg Research

09:16 AM EDT, 10/30/2025 (MT Newswires) -- It came as absolutely no surprise that the Bank of Canada cut rates by 25 basis points again on Wednesday, said Rosenberg Research.

The BoC provided neutral forward guidance, but the overall tone was more dovish than it was six weeks ago and rather negative on the economic outlook, with reference to the weakening macro backdrop transcending mere cyclical surfaces, noted Rosenberg Research.

Half of the 1.5% shortfall in gross domestic prodcut by the end of 2026 compared with the January 2025 forecast is due to demand factors, so the tariff shock has cut both ways, pointed out Rosenberg. Meanwhile, the commentary on the widening excess capacity in the economy, which is inherently disinflationary, was "notable."

Wednesday's cut takes the policy rate down to 2.25% from 2.50%, less than half of the cycle peak of 5.0%. The BoC thinks it has done enough, but it's "clearly unsure," according to Rosenberg. Then again, each of the last five easing cycles of the past quarter-century saw the trough in the overnight rate at 2.0% or lower.

So, nothing really untoward here, it added. The BoC is clearly pushing on a string. Since it began the rate-cutting program in the summer of 2024, real GDP growth has only averaged around a 1.0% annual rate, which is well below potential.

The unemployment rate has risen from 6.4% to 7.1%, tied for a four-year high. Not just that, but this is 130 basis points higher than it was just before COVID-19 struck, when the policy rate was 1.75%.

From Rosenberg's lens, the fact that the press conference contained a reference to any pickup being so tepid that it "implies excess supply is only taken up gradually," with the output gap remaining intact through 2027, is a telltale sign that Canada's central bank isn't yet done. The beauty of this view is that there are only 40% odds being priced in for one more easing by January 2026.

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