Bank of Canada Likely To Lower Rates, Gold Hits New High

The Bank of Canada (BoC) governing council will decide on interest rates later today with many economists forecasting a 50 basis points reduction.

Gold prices hit one more record high on Wednesday morning trading at $2,750 per ounce. Middle East tensions, political uncertainty in the US just before the presidential elections and forecasts regarding further monetary policy easing seem to support the precious metal’s price growth.

Bank of Canada Interest Rate Decision

The BoC will announce its decision on borrowing costs later in the day. Economists forecast that the BoC’s policymakers could cut rates by 50 basis points. If the BoC does reduce rates by 0.50%, it would be the first cut of this magnitude since the Covid-19 pandemic era. Headline inflation has fallen below the BoC’s target while economic growth is also under the BoC’s estimates according to the latest data reports.

Commenting on the BoC’s monetary policy, analysts at the Royal Bank of Canada noted that “arguably the Bank of Canada is well behind the curve. They had to wait due to inflation uncertainties, but with price growth normalizing quickly, the economy no longer needs the current degree of restrictiveness.”

RBC economists seem to be in line with their colleagues’ forecasts mentioning in their report: “Interest rate changes impact the economy with a substantial lag, increasing the urgency to get rates back down to a more neutral policy quickly, which is somewhere in the 2.25% to 3.25% range, according to BoC’s estimates. We expect the BoC will ultimately need to go further than that to prevent the softening in the Canadian economy from stretching into the second half of 2025. Our base case assumes another 50 basis point cut in December and reductions down to 2% by mid next year.” 

IMF Suggests Battle Against Inflation Almost Won

The International Monetary Fund (IMF) World Economic Outlook report released yesterday mentioned that “as disinflation continues, a smooth landing is within reach.” However, IMF’s analysts noted that a policy pivot would be needed, noting that “shifting gears on fiscal policy to ensure sustainable debt dynamics and rebuilding of buffers is appropriate. Advancing structural reforms to boost long-term growth and accelerating the green transition remains as necessary as ever.”

The IMF report suggested that the US economic growth rate is likely to increase, expecting some Asian economies to follow suit on the back of AI-related investments. The fund kept its global growth estimate unchanged at 3.2% for this year and 2025.

Goldman Sachs Talks Potential US Tariffs

With the US presidential elections due on November 5th, Goldman Sachs (GS) analysts run scenarios based on the candidates’ suggested economic policies. According to a Reuters report citing GS analysts, a Republican victory could bring new tariffs on imported products and domestic tax cuts in order to boost the US economy. In this case, GS economists suggest that the US dollar could gain ground against other currencies with the euro dropping as much as 10%.

According to the report, such a move could make inflation rise bringing back the possibility of higher interest rates imposed by the Federal Reserve. GS suggested that if the Democrat candidate won the elections, could initially weaken the US dollar “as markets reprice the prospect of more dramatic changes in tariffs.”

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