The Bank of Canada’s main office sits at 234 Wellington Street in Ottawa. (Photo: Adam Huras/Brunswick News)
The Bank of Canada could be headed for a significant interest rate cut, with financial market experts predicting a drop to 2.25% by the close of 2025. According to a Bank of Canada survey released Monday, most expect the rate to remain at that level through 2026.
The central bank’s latest quarterly survey, conducted between June 25 and July 3, gathered responses from 30 major market participants. This came weeks before the July 30 policy decision, where officials kept the overnight rate steady at 2.75% for the third consecutive meeting.
Why the Hold Continues
The central bank’s decision to maintain the current rate stems from three main factors:
- Uncertainty in global trade
- A stronger-than-expected Canadian economy
- Persistent underlying inflation
Core inflation has hovered close to 3% since April, prompting caution in further cuts.
However, Bank of Canada Governor Tiff Macklem hinted that rate relief could still be on the horizon. He noted that if economic weakness continues to push inflation down—and trade-related price pressures ease—a rate reduction might be warranted.
Inflation, Growth, and Recession Outlook
Survey participants forecast headline inflation to drop to 2.2% by the end of 2025 and reach 2% in 2026. The economy is expected to grow modestly—0.8% this year and 1.8% in 2026. Still, the probability of a recession within the next six months sits at 35%, according to respondents.
Risks on the Horizon
When asked about the biggest threats to economic stability:
- 89% pointed to rising trade tensions as the most significant downside risk.
- 44% cited weaker consumer spending and a sluggish housing market as additional concerns.
What Could Turn Things Around?
On the upside, nearly 90% of respondents said the economy could benefit if trade tensions ease. Many also believe that more aggressive fiscal stimulus from the government could provide a stronger-than-expected boost to growth.
With rate cuts anticipated and inflation showing signs of cooling, the next few months will be pivotal in determining how far the Bank of Canada will go in reshaping its monetary policy. For now, financial markets are betting on a softer interest rate environment ahead—while keeping a close eye on global trade developments and domestic spending trends.
