Further easing expected from BOC

The BOC cut the overnight rate by another 25bp in July. Although the Bank continues to provide little guidance on the future direction of the policy, further policy easing is expected, with the base case scenario of yet another 25bp cut in January. Most importantly, the Bank's growth outlook looks highly optimistic. Indeed, the MPR assumes 2.8% GDP growth in 2016 (Q4/Q4 basis). Given continuing readjustments of the energy industry and overleveraged consumer sector, such high growth could be only achieved with a strong pick-up in net exports, which is unlikely given the recent slowdown in the US trend growth and reduced sensitivity of Canada exports to US growth. 

The MPR also assumes the WTI price at $60/bbl, which likely overestimates the outlook for oil prices given slowing China growth and a potential pick-up in supply from Iran. China's slowdown may also put a further downward pressure on other exported commodities, in addition to oil. At the same time, Governor Poloz has hinted the BOC may consider further easing if growth disappoints.