Think of the Bank’s Latest Rate Cut as Uncertainty Insurance
To: Interest rate watchersFrom: Jeremy M. Kronick and Steve AmblerDate: February 4, 2025Re: Think of the Bank’s Latest Rate Cut as Uncertainty Insurance After two cuts of 50 basis points at its last two announcements, the Bank of Canada cut its policy rate by 25 basis points last week. If there was no massive trade threat coming from south of […] Graph of the Week: US-Canada Policy Rate Gap Largest Since 2000
The current gap between the US and Canadian policy interest rates in favour of the former is its largest since the Bank of Canada first went to its Fixed Announcement Date schedule in November 2000. A larger gap in favour of the United States causes a depreciation in the loonie, though its impact has dampened […] With Tariff Threats and Prorogued Parliament, the Bank of Canada Was Right To Cut Rates Again
Published in The Globe and Mail. After two cuts of 50 basis points at its last two announcements, the Bank of Canada cut its policy rate by 25 basis points on Wednesday. (A basis point is one-hundredth of a percentage point.) If there were no massive trade threat coming from south of the border, it’d be unclear […] Keep the Dollar to Keep Our Independence
To: Trade observersFrom: Jeremy M. Kronick and Mark ZelmerDate: January 27, 2025Re: Keep the Dollar to Keep Our Independence The loonie was trading below 70 US cents last week, a level not seen for more than 20 years. Every time it hits an air pocket like this one, calls emerge for Canadians to give up a separate currency […] C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Cut Overnight Rate to 3.00 Percent Next Week and 2.75 Percent by July
December 5, 2024 – The C.D. Howe Institute’s Monetary Policy Council (MPC) calls for the Bank of Canada to lower its target for the overnight rate, its benchmark policy interest rate, to 3.50 percent at its next announcement on December 11th. The MPC further calls for the Bank to lower the target to 3.25 percent at the following announcement in January, to 3.00 percent by June of 2025, and to 2.75 percent by December of 2025.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. MPC co-chair Jeremy Kronick, the Institute’s Vice-President, Economic Analysis and Strategy, chaired this meeting. MPC members make recommendations for the Bank of Canada’s…
Let’s Keep the Canadian Dollar and Remain in Control of Our Own Policy Choices
Published in the Financial Post. The loonie is now trading below 70 US cents, a level not seen for more than 20 years. Every time it hits an air pocket like this one, calls emerge for Canadians to give up a separate currency and adopt the United States dollar. This time is no exception. Kevin O’Leary recently […] Intelligence Memos: 2024 in Review
To: Our Faithful Readers Date: January 2, 2025 Re: Intelligence Memos: 2024 in Review Intelligence memos are a key way C.D. Howe Institute researchers share their insights about current events. And 2024 had no shortage of material: Canada’s healthcare struggles, housing affordability, the Bank of Canada’s inflation fight, a host of questionable fiscal policies from Ottawa and the […] Monetary Policy Initiative
The C.D. Howe Institute’s Monetary Policy Initiative builds on the Institute’s longstanding history and reputation of influential monetary policy research. Gathering periodically to discuss research priorities and publications, focus areas for the MPI include the monetary policy framework, the monetary policy transmission mechanism, and the financial system’s interaction with monetary policy. The Institute gratefully acknowledges […] Jeremy Kronick and Steve Ambler – Bank’s Big Rate Cut an Exercise in Risk Management
To: Interest rate watchers From: Jeremy M. Kronick and Steve Ambler Date: December 20, 2024 Re: Bank’s Big Rate Cut an Exercise in Risk Management Before the release of Statistics Canada’s labour survey for November, markets were fairly evenly split between predicting a 25-basis-point cut by the Bank of Canada and a 50-basis-point cut. The increase in […] Jeremy M. Kronick, Hashmat Khan and Matthew Soosalu – The Importance of a Shifting Monetary Policy Stance
From: Jeremy M. Kronick, Hashmat Khan and Matthew Soosalu To: Canadian economic observers Date: December 17, 2024 Re: The Importance of a Shifting Monetary Policy Stance The Bank of Canada, which has been lowering the overnight rate of interest following a nearly three-and-a-half-year battle with inflation, cut rates again last week. So: How tight does monetary policy remain in this easing cycle? […]Jeremy Kronick, Hashmat Khan and Matthew Soosalu – It’s not just a policy rate anymore. It’s a policy curve
Published in the Financial Post
The Bank of Canada, which has been lowering the overnight rate of interest following a nearly three-and-a-half-year battle with inflation, cut rates again yesterday. So: How tight does monetary policy remain in this easing cycle? How much further loosening needs to happen? And where will interest rates end up when all is said and done?
Answering these questions involves juggling two things at once. First, qualifying what the monetary policy stance actually is. Second, comparing it to a neutral stance — where the economy is producing at its potential and inflation is at its target — in order to determine whether it is loose or tight. Both are hard.
Start with the first element. For the…
Kronick, Ambler – Bank of Canada made the right call, despite conflicting data making it hard
Published in The Globe and Mail.
Before the release of Statistics Canada’s labour survey for November, markets were fairly evenly split between predicting a 25-basis-point cut by the Bank of Canada and a 50-basis-point cut. (A basis point is one-hundredths of a percentage point.) The increase in the unemployment rate to 6.8 per cent in November, up from 6.5 per cent in October, shifted those predictions toward 50 basis points. This is what the Bank of Canada announced Wednesday morning.
The reason that market participants were hedging their bets is that the economic data were sending mixed signals, and there is a certain elephant south of the border creating uncertainty.
We think the Bank of Canada made the right move…