‘Doesn’t give any ammunition for the Bank of Canada to cut rates’: fixed-income expert

Etienne Bordeleau-Labrecque, Vice President and Portfolio Manager at Ninepoint Partners, joins BNN Bloomberg to discuss fixed income strategy ahead of BoC's rate decision.

As the Bank of Canada prepares to announce its key interest rate on Wednesday, a fixed-income expert says the central bank has no reason to cut or increase rates especially as Canada faces an unprecedented trade war.

The Bank of Canada is widely expected to hold its policy rate steady at 2.75 per cent for the third consecutive decision as U.S. President Donald Trump continues to shake up global financial markets in pursuit of trade deals from countries around the world.

“I think it’s been well telegraphed. Governor (Tiff) Macklem several times told us we are in a good place, we lowered rates a lot and there’s a lot of uncertainty,” Etienne Bordeleau-Labrecque, vice president and portfolio manager of Ninepoint Partners told BNN Bloomberg in a Tuesday interview. ”We need to see how this plays out, this push and pull between a weaker economy on the service side, services inflation slowing down and housing slowing down.”

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“(The price of goods) are moving back up because of the trade war and core inflation in Canada has been around three for the last several months,” said Bordeleau-Labrecque. “I don’t think they’re very happy with that. Headline inflation is distorted by the removal of the carbon tax by the Carney government but if you look at core inflation, it’s not going in the right direction. I think that doesn’t give any ammunition for the Bank of Canada to cut rates tomorrow.”

The Canada Mortgage Housing Corporation recorded a mortgage lending rate of 3.30 per cent on a five-year term. In 2024, that number had jumped to 6.31 per cent. Bordeleau-Labrecque expects a slight increase in interest rates for homeowners.

“We’ve cut 50 beeps this year, but the yield curve has been steepening, meaning five year interest rates are roughly flat from where we started the year, 10 year and 30 year rates are actually higher,” said Bordeleau-Labrecque. “If the rate cut cycle is over, and I’m not saying that’s the case, but if it is, then we should expect a further steepening of the curve. That’s historically what has happened. You might have done a good thing, renewing your mortgage at a fixed rate for five years, because five year mortgage rates might be going up a little bit.”

Impact of tariffs on industries imminent

Bordeleau-Labrecque said the impact of U.S. tariffs haven’t impacted industries that much as the deadline for trade deals looms. The U.S. has struck agreements with other countries settling on deals around 10 to 20 per cent with the European Union, the United Kingdom, the Philippines, Japan, Indonesia and Vietnam. Canada faces a 35 per cent tariff if a deal is not reached.

“We have seen a little bit of pass through, and it’s really a matter of how much they want to retaliate as well,” said Bordeleau-Labrecque. “We haven’t really seen a trade deal from Canada yet. Most other countries that have cut a trade deal with the U.S. have decided not to retaliate, so they’re taking a big cut on their own tariffs and essentially seeing most of their good’s tariffs going into the U.S. It remains to be seen what happens with that. We’re starting to see a little pass through, but not a whole lot.”

Bordeleau-Labrecque said he doesn’t think inflation will heat up and increase interest rates particularly as unemployment remains below 10 per cent. He said there needs to be a big shock in inflation for it to drive up interest rates.

“At the moment, goods inflation, food inflation, because of the countervailing tariffs, is starting to move up a little bit. But if you look at services inflation, which is the other half of the inflation basket, house prices, rents are going down most of the country, and the aggregate, it’s going down,” said Bordeleau-Labrecque. “That’s going to prove to be a deflationary force. The labour market is very soft. Unemployment in this country is 6.9 per cent. In Ontario, it’s almost eight per cent so what’s going to be driving inflation high enough that the Bank of Canada needs start hiking rates again? You need to see a very large shock on the goods front, which I don’t think is going to happen.”

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He said some people think the bank could be done cutting rates while others think it could be cut down more. He said the current rate doesn’t constrict or stimulate the economy and said the government should help industries hit by tariffs rather than handing out funds.

“At 2.75 per cent we’re right in the middle of what they call the neutral rate range,” said Bordeleau-Labrecque. “That’s the rate of interest that doesn’t stimulate or constricts the economy. The trade war has impacts on very specific sectors, steel and aluminum, copper, auto sector. This monetary policy is very blunt tool, and so perhaps it’s better for the federal government to intervene and help these industries very specifically, as opposed to a massive dose of monetary stimulus.”