Bank of Canada: To Neutral and (a Bit) Beyond

What was once labeled an overly dovish forecast has now largely become consensus. The market-implied path currently sees the Bank of Canada’s policy rate falling to 3.15% by the middle of next year, slightly below our long-held forecast that the central bank would need to significantly cut rates ahead of the mortgage renewal wall. This move has come faster than we predicted, with 2‑year yields reaching our third-quarter target two months early. That said, we still believe there’s more room to run, and the next few months will be critical to seeing the market fully incorporate our forecast for the Bank of Canada to cut rates below its neutral rate estimate.