‘A watershed moment’: How market bets and economist views for future BoC rate cuts have shifted after September’s inflation data

Money markets are back to giving much higher odds to a large 50 basis points rate cut by the Bank of Canada at its next policy meeting next week following the softer-than-expected headline inflation reading this morning. Many economists are also now expecting a half percentage point cut.

Implied probabilities in overnight swaps markets, which capture market bets on where monetary policy is heading, are now giving close to 70 per cent odds of a 50 basis point cut on Oct. 23. The odds of a smaller 25 basis point cut are at about 30 per cent. Prior to this morning’s inflation report, markets were putting 50/50 odds on whether it will be a larger or smaller cut.

Markets are now fully pricing in a total of 75 basis points worth of monetary easing by the end of this year.