11/16/2025
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Posted in Interest Rates by Vanguard Realty | Back to Main Blog Page
Scotiabank is breaking from the market consensus, calling an end to the Bank of Canada’s rate-cutting cycle and forecasting that the next move will be two quarter-point increases in the second half of 2026.
In its latest forecast, Scotiabank economists argue that inflation pressures remain too strong for policy-makers to continue easing. While growth is sluggish and trade frictions persist, Scotiabank believes the recent rate cuts were more about “insurance” than stimulus, and that those cuts could be reversed once the economy stabilizes.
“Inflation risks are serious enough that the Bank of Canada is done cutting interest rates,” the report says. “We expect Governor Macklem and his colleagues will raise the policy rate by half a percentage point in the second half of 2026, reversing the most recent cuts.”
Scotiabank’s economists, led by Jean-François Perrault, see real GDP rising 1.2% this year and 1.4% next year, a modest rebound helped by fiscal support and a gradual recovery in investment. While structural challenges like weak productivity and slower population growth will weigh on potential output, the bank expects that increased government spending and new industrial investment projects will help offset those drags and prevent a deeper contraction.
The call represents one of the most hawkish outlooks among the Big Six banks.
Other banks aren’t convinced the cutting is done
As the chart above shows, TD, RBC and CIBC expect the Bank of Canada to hold its policy rate steady at 2.25% through 2026. BMO and National Bank, however, still see room for one more 25-basis-point cut, with National Bank anticipating that move could come as early as next month.
BMO economists Michael Gregory and Jennifer Lee note that Governor Tiff Macklem’s recent press conference had “a ‘we’ve done what we can for now’ feel,” suggesting the central bank is close to the end of its easing campaign.
“If the economy evolves roughly in line with the outlook in our MPR, Governing Council sees the current policy rate at about the right level,” Macklem said following the October 29 decision. BMO views that as a signal to pause, though not necessarily the end of cuts, leaving room for what it calls an “insurance move” to a 2.00% policy rate if growth and inflation weaken further early next year.
RBC, on the other hand, leans more firmly toward a rate hold, with economist Claire Fan arguing that resilient consumer spending and sticky underlying inflation will keep the BoC cautious.
“Sticky underlying inflation due to resilient domestic demand is why we think the Bank of Canada will have a hard time justifying cutting the overnight rate from 2.25% to outright stimulative levels,” she wrote.
RBC’s latest forecast report outlines five key factors that could keep consumer spending strong, including rising per-capita consumption despite slower population growth, easing mortgage renewal pressures following earlier cuts, stronger household balance sheets, and only limited spillover from U.S. tariffs so far.
Source: Canadian Mortgage Trends
Bank of Canada, Bank of Canada Benchmark Rate, Canada Inflation Rate, Interest Rate Forecast
