Respondents believe that by the end of 2025, the BOC’s policy rate fell from the current 2.75% to 2.25%, indicating that 25 base points have been cut twice in the coming months. Median forecasts require first cuts between June and June, with interest rates falling in the second half of the year.
The median market demands a year-end reduction of two downgrades, with extensive matching forecasts from Royal Bank of Canada, CIBC and TD, and by the end of the year, banks in Canada have all lowered their policy rates to 2.25%.
BMO and the National Bank are expected to have some positive relaxation, with policy rates expected to reach 2.00% by the end of the year.
Previously predicted that Scotiabank will remain stable by the end of next year, it has now updated its call to reflect the third-tier cuts in 2026. The revisions are a sharp decline in North America’s growth outlook driven by escalating U.S. trade tensions and weaker global demand.
“In Canada, we assume Governor McLean remains unchanged for the rest of the year, but it depends on the evolution of the global trade war, the extent to which U.S. economic activity has declined and the Canadian government’s reaction to it,” wrote Scottia economist Jean-Francois Perrault in a recent note. “If the U.S. or Canadian economies weaken beyond expectations, then the BOC could lower interest rates. ”
The bank now expects BOC’s policy rate to remain at 2.75% by 2025 before falling to 2.00% by the end of 2026.
Other key points of market participant survey
The latest BOC survey lowered expectations and also highlighted the growing concern about the economic outlook of Canada. Participants saw slower growth, moderate inflation and the increased risk of recession next year.
Key findings include:
- Recession risk: Participants allocated 40% of the likelihood of Canada entering a recession over the next 12 months.
- Inflation prospects: By the end of 2025, the total CPI inflation rate is expected to hover around 2.4%, and then drop to 2.00% by the end of 2026, down from the current 2.30%.
- Growth expectations: The real GDP growth rate is expected to be 1.0% in 2025 and 1.7% in 2026.
- Risk balance: Nearly 45% of respondents see risks that tend toward lower interest rates.
- Output gap: About 77% believe that the Canadian economy’s current output gap is negative (GDP is lower than potential).
- Bond output: 2-year, 5-year and 10-year Canadian bond yields are expected to remain within the 2.50% to 3.00% range in 2025.
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Last modified: April 28, 2025
