BoC to keep the policy rate on hold at its 4 June meeting (instead of a 25bps cut). With the policy rate at neutral, BoC has been unwilling to ease more unless growth goes further south. There should be two more 25bps cuts for the remainder of 2025 as growth softness supports lower rates, Standard Chartered's economist Dan Pan reports.

Looking for a more negative output gap

"We now expect Bank of Canada (BoC) to keep the policy rate on hold at 2.75% at its 4 June meeting (instead of a 25bps cut). The central bank kept the policy rate unchanged at its April meeting, showing a reluctance to endorse further rate cuts until it has more information on tariffs and their impact on the economy. Tariff de-escalation since then has likely reduced downside risks to growth and limited the urgency for an imminent rate cut, in our view. Given that the policy rate is at the middle of the BoC’s neutral estimates, it may prefer to extend the pause to avoid overstimulating the economy. The acceleration of core inflation measurements since the beginning of the year also likely warrants additional caution against premature rate cuts."

"Labour-market softness skews risks towards additional easing. The BoC has maintained that stronger-than-expected growth at end-2024 has resulted a smaller output gap and reduced the need for additional easing. But if growth data shows a material deterioration, the BoC may quickly revert to cutting as early as the June meeting. Our assessment is that the data so far may not indicate sufficient growth weakness to bolster the case for immediate easing, but that ongoing economic uncertainty is likely to weigh gradually on growth in the coming months. This should provide enough economic slack for the BoC to resume easing in Q3, especially if core inflation resumes its downtrend. We continue to expect two more 25bps rate cuts for the rest of the year, taking the year-end rate to 2.25%."