rates
CUTTING LIKE IT’S 1999 As the Bank of Canada gets ready to loosen its restrictive monetary policy, some insight can be gleaned from previous cycles.
The Bank of Canada has a mandate to keep inflation low, stable, and predictable and that, above all else, is its main focus. So while we have dedicated a sizeable portion of the rennie landscape detailing all the ways in which the Canadian economy is sagging under the weight of high interest rates, the Bank is far more concerned with getting inflation back to 2% on a consistent basis. This is why, when they do start to cut their policy rate, they will do so carefully to avoid reigniting high inflation.
In the most recent tightening cycle, not only did the Bank raise ten times in total but six of those were greater than 25 basis points while two were greater than 50 basis points. Over the past six loosening cycles combined, only 14 cuts were more than 25 basis points (with eight of those coming in 2020 and 2009) and only four were greater than 50 basis points (three in 2020 and 2009). Expect the Bank to go slowly with their cuts this year, similar to 1999 when they dropped the policy rate four times, each by 25 basis points, in eight months.
MEASURE TWICE, CUT ONCE
NUMBER OF MONTHS FROM START OF LOOSENING CYCLE
0
1 2 3 4 5
6 7
8 9 10111213141516
17
0.00%
2015
-0.50%
1998-99
-1.00%
2003-04
2020
-1.50%
1995-96
-2.00%
-2.50%
-3.00%
-3.50%
2000-02
-4.00%
2007-09
-4.50%
SOURCE: STATISTICS CANADA. TABLE 10-10-0122-01 DATA: PERCENTAGE-POINT REDUCTION IN BOC POLICY RATE, MONTHS FROM START OF LOOSENING
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