08:27 AM EDT, 04/11/2025 (MT Newswires) -- Bank of Canada will publish its policy statement on Wednesday at 9:45 a.m. ET, noted RBC

The BoC was a reluctant cutter in March, relying on downbeat sentiment and uncertainty -- amid strong fundamentals that argued for a hold -- to provide an insurance cut to ease the expected pain, said the bank. With downside global growth risks more elevated than last month -- larger United States tariffs than expected, excluding North America trading partners -- the path of least resistance might be the same approach.

RBC's conviction of 55% isn't particularly high, even though the growth/inflation mix is arguably more favorable for another cut compared with the March meeting. The bank's hesitancy in a higher conviction cut call revolves around the difficult balancing act of basing policy on an uncertain tariff duration and magnitude when rates have already been lowered substantially and core inflation remains sticky.

It's largely irrelevant what the BoC does next week, stated the bank. The BoC is almost done cutting and the market is pricing not many more. If it stops, pauses, or cuts, bond yields/swap curve -- which have been linked to terminal -- probably won't move much.

Canada has escaped a full direct tariff assault. RBC Economics estimates the current set of tariffs -- factoring in USMCA-compliant goods and U.S. content in finished vehicles -- only amounts to 3.5%. Retaliation is proportionally minimal.

The direct growth/inflation impacts are small. The second-round effects are now in focus -- U.S./global growth slowdown, importing inflation via the global supply chain, and tariff/trade uncertainty weighing on consumer/businesses. Growth concerns probably outweigh inflationary ones, with tariff hostility more forcefully directed to other countries. The challenging aspect for monetary policy is that while the delta on growth is down -- even if tariffs rolled back soon -- the magnitude is uncertain.

Like March, the BoC meeting will need to weigh current/past fundamentals against risk factors of unknown magnitude, added the bank. The BoC seemed uncomfortable providing an insurance cut at the last meeting, so maybe it isn't inclined to provide another, especially with uncomfortably sticky core inflation.

But since the last meeting, the marginal change in the holistic information set is negative -- soft/qualitative data (BOS, CFIB), some recent hard data (employment and housing), and future growth risks (unknown magnitude) should alter the output gap assessment.

Alongside public optics and how the BoC weighted these factors at the March meeting, this should tilt the balance to another insurance cut. Canada faces a less challenging and complex growth/inflation trade-off than the U.S., but it's still a difficult one to navigate from the current policy rate level.

No change for now to RBC's 2.25% terminal rate assumption. Even with heightened secondary growth risks from U.S. tariffs on a wide swath of global trading partners, the risk of only one more cut -- or a hold and no additional cuts -- in the cycle is greater than three cuts with the bank's modal assumptions remaining at two cuts.

Once the BoC stops, the bar to restarting the cycle is high, according to RBC. Even a large direct tariff hit wouldn't have resulted in terminal being lower than otherwise because it would be likely that fiscal policy would fill the growth gap. The logic still broadly holds in the context of indirect spillover effects instead of a direct tariff impact.