On February 4th, the market began to anticipate that the Bank of Canada would increase its interest rate cuts, as the country may be embroiled in a prolonged trade dispute with the United States, which could lead to an economic recession in Canada. As of 2pm Ottawa time on Monday, overnight swap traders believe that the likelihood of the Bank of Canada cutting interest rates by 50 basis points at its March 12th meeting exceeds 20%. On January 30th, the market had not even fully digested the expectation of a 25 basis point interest rate cut. The current market pricing suggests that many traders are betting that the central bank will eventually lower the policy rate to around 2.25%. Last week, market pricing implied that interest rates would not be lower than 2.5% in the current cycle.
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