Monday Market Minute | Oct 28, 2019

BoC holds at 1.75% as Fed delivers third cut — divergence widens

What Moved

In a consequential week, the Bank of Canada held its overnight rate at 1.75% on October 30, while the Federal Reserve cut for the third time in 2019 on October 30, bringing the fed funds rate to 1.50-1.75%. The BoC's Monetary Policy Report downgraded the 2020 GDP forecast but maintained that the Canadian economy's fundamentals did not warrant a rate cut. The policy divergence — Canada now 25 basis points above the US upper bound — was the widest of the easing cycle.

Why It Matters

The BoC's independence from the Fed's easing cycle was notable and had tangible implications. Higher Canadian rates attracted foreign fixed income capital, supported the Canadian dollar, and preserved the yield advantage of Canadian private credit. For domestic investors, the BoC's steady hand provided confidence that monetary policy would remain predictable — a critical input for underwriting leveraged private market strategies with multi-year horizons.

Signal to Watch

Chairman Powell characterized the October cut as the end of the "mid-cycle adjustment," suggesting the Fed was done cutting. If the US rate environment stabilized, the pressure on the BoC to ease would diminish, potentially anchoring Canadian rates at 1.75% well into 2020.

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