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The updated outlook marks a departure from Scotiabank\u2019s long-standing view that the BoC had already reached its terminal rate and would remain on hold at 2.75% throughout its forecast horizon.<\/p>\n
In a new report, Scotiabank\u2019s economists say the outlook for growth is dimming quickly, thanks in large part to a \u201cdramatic escalation of America\u2019s war on trade.\u201d <\/p>\n
While Canada has avoided the steepest tariffs so far, the spillover from weaker U.S. growth and softer commodity prices is already being felt.<\/p>\n
In the U.S., Scotiabank says 100-year-high tariffs are \u201calready causing a material slowdown in economic activity that will extend well into next year.\u201d <\/p>\n
And while tariffs against Canadian goods haven\u2019t changed much since March, the economic damage elsewhere is weighing heavily.<\/p>\n
\u201cWe now forecast the Federal Reserve will keep its policy rate at the current level through the remainder of the year given the inflationary consequences of its tariff policy,\u201d the report says. \u201cThe Bank of Canada is currently forecast to keep its rate at 2.75% for the remainder of the year, but that assessment may change as we see how inflation and growth evolve in coming months.\u201d<\/p>\n
While a full-blown recession isn\u2019t Scotiabank\u2019s base case\u2014unlike others like Oxford Economics\u2014it admits it\u2019s a close call. <\/p>\n
\u201cThere is no doubt that economies will flirt with recession owing to the tariffs and associated uncertainty,\u201d the economists warn. <\/p>\n
For Canada, they now forecast GDP growth slowing to just 0.7% in 2026, with the unemployment rate rising to 7.2% as the economy struggles to regain momentum.<\/p>\n
With slower growth on the way, Scotiabank says it now expects the Bank of Canada to start cutting interest rates next year.<\/p>\n
\u201cWe assume that Governor Macklem keeps rates unchanged for the remainder of the year, but this depends critically on the evolution of the global trade war, the magnitude of the decline in U.S. economic activity, and the Canadian government\u2019s response to it,\u201d the team said. <\/p>\n
\u201cIf the U.S. or Canadian economies weaken more than expected, the BoC would likely lower rates,\u201d they added. <\/p>\n
Under their base case, the Bank of Canada would lower its policy rate by a total of 75 basis points in 2026, helping to support a still-fragile recovery.<\/p>\n
That puts Scotiabank at odds with most other major banks, including BMO, TD and CIBC, which expect the central bank to continue cutting rates this year before moving to the sidelines for the foreseeable future. <\/p>\n
While National Bank and RBC also expect two to three quarter-point rate cuts in 2025, they both expect the Bank of Canada to hike once or twice in 2026 as economic conditions improve.<\/p>\n But even as Scotiabank expects the BoC to stay on hold this year and begin easing in 2026, the path forward won\u2019t be simple. A key challenge, they say, is that inflation isn\u2019t going away quietly\u2014especially with tariffs driving up costs across the board.<\/p>\n \u201cIt will be challenging for central banks, including Canada\u2019s, to ensure that the one-off nature of tariff shocks does not lead to rising inflation,\u201d they said.<\/p>\n Despite those risks, Scotiabank still sees inflation gradually easing, with CPI growth slowing from 2.3% in 2025 to 2.1% by 2026\u2014close to the Bank of Canada\u2019s 2% target. That assumes the economy continues to cool and the tariff impact doesn\u2019t spiral.<\/p>\n At the same time, the bank warns the forecast could shift quickly. If trade tensions ease, \u201cit might be possible for the economy to rebound sharply in the second half of this year,\u201d they said. <\/p>\n But if the trade war escalates and tariffs climb even higher, \u201cthe economic outlook would be significantly worse,\u201d they said.<\/p>\n Visited 1,863 times, 1,862 visit(s) today<\/p>\n bank of canada rate forecast big bank forecasts BoC BoC rate forecast inflation scotia scotiabank tariffs trade war<\/p>\n Last modified: April 29, 2025<\/p>\n<\/p><\/div>\nInflation will be a tough balancing act<\/h2>\n