Bank of Canada Brings Back the Punch Bowl

Canadian borrowers will be toasting the BoC from coast to coast, having waited for this day since the first hike 27 months ago.

Odds are, today's 25 bps cut is just the appetizer. The Bank expects it to start a string of easing—one that markets anticipate will last about 200 bps.

Even though some naysayers called recent economic data "inconclusive," BoC chief Tiff Macklem couldn't ignore the red warning lights on his economic dashboard, nor (at least subconsciously) public cries for rate relief. Ultimately, the Bank trimmed rates to dodge an even bigger economic iceberg that's already on the horizon.

Even as the target rate dips to 4.75%, the shackles are by no means off. Rates are still tightly restrictive. Canada's policy rate remains 200 bps above average core inflation. The 20-year average is 45 bps below inflation, almost two and a half points lower.

Where we go from here