Canada’s central bank is widely expected to hold interest rates at 2.75% this Wednesday, with economists predicting at least two more cuts before the end of 2025. According to a recent Reuters poll, over 75% of economists surveyed (20 out of 26) believe the Bank of Canada (BoC) will keep rates steady as it waits for more clarity on the economy’s direction.
The consensus follows stronger-than-expected GDP growth in the first quarter of 2025, where the economy expanded at an annualized rate of 2.2%. This growth was largely driven by a spike in exports as U.S. buyers rushed to secure Canadian goods ahead of President Donald Trump’s new tariffs. Despite this momentum, lower household spending and weak domestic demand signal potential economic headwinds.
“There isn’t urgency from the growth numbers, and there is caution from the core inflation numbers,” said Douglas Porter, Chief Economist at BMO Capital Markets. Porter expects a rate hold, echoing the updated outlooks from BMO, CIBC, and TD, who revised their calls from a rate cut to a pause. Scotiabank maintained its position of no change.
The BoC has already cut rates by a total of 225 basis points since June 2024. Still, core inflation remains near the upper end of the BoC’s 1-3% target range, giving the central bank reason to wait and reassess. Economists expect the BoC to update its forecast in July, which could provide the next opportunity for a policy change.
Despite Wednesday’s anticipated pause, nearly 75% of economists polled expect further rate cuts this year. Of the 23 economists surveyed, 17 forecast at least two more cuts, with several anticipating up to four.
CIBC’s Chief Economist Avery Shenfeld noted, “We look for a pause (on Wednesday), but one accompanied by a message that leaves the door open for rate relief ahead.”
While Canada’s economy posted a 0.1% gain in April, economists expect contractions of 1.0% in Q2 and 0.5% in Q3. If those forecasts materialize, it would meet the technical definition of a recession. TD Securities’ Andrew Kelvin added, “We believe Canadian growth is likely to slow sharply through the middle part of the year, justifying further rate cuts.”
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