Bank of Canada to focus on risks before rate decision

The Governor of the Bank of Canada, Tiff Macklem, revealed that the Bank intends to shift its focus towards potential risks that may arise when making decisions regarding interest rates later this month. This move comes as the Bank of Canada (BoC) also adopts the aim of looking ahead more clearly.

This announcement follows Macklem’s statement that they need to be realistic about their predictions and carefully observe the risks during a conference call from Washington.

The BoC aims to embrace a cautious approach before its upcoming decision on rates

On October 29, the central bank will announce its final decision on interest rates and provide new economic forecasts for the country. This day will also signal the return of the bank’s forecasts on the economy and inflation, which it ceased providing earlier this year due to increased uncertainties stemming from ongoing threats posed by US President Donald Trump’s tariffs.

“We will utilize a new base case projection to look ahead while considering the current high degree of uncertainty… I hope we can embrace a more forward-looking approach,” Macklem explained. The governor also pointed out that although uncertainty still exists, it is lower than what was noted in February and March.

Regarding the interest rate, money markets have suggested a 64% likelihood of a 25-basis-point rate cut this month. This is anticipated to reduce the benchmark policy rate to 2.25%. In September, the BoC had lowered rates by 25 basis points, settling them down to 2.5%.

To illustrate the bank’s commitment to the situation, reliable sources have highlighted that it will have access to a survey of businesses and consumers before the finalization of interest rates this month. This survey will inform the BoC of inflation outlooks, investment patterns, and spending habits. Notably, the survey review is scheduled for Monday, October 20.

Meanwhile, apart from the survey, the bank will also have access to the latest inflation reports on Tuesday, October 21. The report will highlight consumers’ September price data.

Another economist recently stated that Canada’s economic growth in the third quarter could fall short of the Bank of Canada’s forecast, given the latest data showing a contraction in manufacturing sales.

“We continue to expect a weak third quarter, with growth on track to significantly undershoot the Bank of Canada’s one per cent forecast,” Alexandra Brown, North America economist at Capital Economics Ltd., said in a note.

Manufacturing sales decreased by one per cent in August, according to Statistics Canada data released on Wednesday, although this result beat estimates for a 1.5 per cent drop. Their value declined by 1.5 percent for the month. Manufacturing sales declined in 12 of the 21 subsectors, with transportation experiencing the largest decrease, 5.7 percent from July, while the food sector contracted by 1.9 percent.

Capital Economics forecasted third-quarter GDP to come in at 0.8 percent on an annualized basis in late September.

Macklem expresses his delight with the IMF’s new monitoring approach

Canada’s economic growth drastically declined by 1.6% annually in the second quarter. After several considerations, the Bank of Canada has predicted that the country’s economic growth will soon rebound.

Still, Macklem believes that growth will remain sluggish and below its potential. According to him, this will not eliminate the output gap.

As debates about the country’s economic growth heated up, the governor actively attended meetings with financial leaders from the G7. He also joined discussions at the International Monetary Fund (IMF) in Washington.

During the discussions at the IMF, he noted that IMF leaders emphasized that global imbalances were once again widening. Afterwards, they explained that this could heighten risks, escalate trade tensions, and jeopardize financial stability.

Following the IMF’s observation, Macklem expressed pleasure that the agency is now strengthening its monitoring of these imbalances.