TD Securities Forecasts Further Rate Cuts for Canada's Central Bank

TD Securities analysts say Canada's central bank is likely to continue easing monetary policy in response to soft core inflation and a sluggish economy. The firm notes that underlying price pressures are contained, allowing the Bank of Canada (BoC) to focus on supporting economic growth.

The BoC has already cut its policy rate three times since June 2024, bringing it to 3.25% as of December. TD Securities expects further cuts in 2025, with the policy rate potentially reaching 2.5% by mid-year. This would imply additional cuts of 75 basis points from the current rate.

The recent inflation data, particularly the persistent weakness in core measures, provides the central bank with room to ease policy further without immediate inflationary pressures. The BoC's preferred indicators, CPI-trim and CPI-median, are staying near the lower end of the central bank's 1% to 3% control range.

The softness in core inflation suggests that underlying price pressures are contained, allowing the BoC to focus on supporting economic growth. This view aligns with the BoC's own communications, which have emphasized that monetary policy no longer needs to be as restrictive.