Scotiabank broke with market consensus by calling on the Bank of Canada to end its rate-cutting cycle, predicting that the next move will be a two-quarter percentage point hike in the second half of 2026.
In their latest forecast, Scotiabank economists argue that inflationary pressures remain too high for policymakers to continue to ease monetary policy. Despite slow economic growth and ongoing trade frictions, Scotiabank believes that recent rate cuts are more for “insurance” than stimulation, and that these rate cuts may be reversed once the economy stabilizes.
“Inflation risks are serious enough that the Bank of Canada is no longer interested in cutting interest rates,” the report said. “We expect Governor Macklem and his colleagues to raise the policy rate by half a percentage point in the second half of 2026, reversing recent rate cuts.”
Scotiabank economists led by Jean-François Perrault expect real GDP to grow 1.2% this year and 1.4% next year, with fiscal support and a gradual recovery in investment driving a modest rebound. While structural challenges such as weak productivity and slowing population growth will weigh on potential output, the bank expects increased government spending and new industrial investment projects to help offset these drags and prevent the economy from shrinking further.
The call represents one of the most hawkish outlooks among the big six banks.
Other banks don’t believe cuts are done
As shown in the chart above, TD Bank, Royal Bank of Canada, and Canadian Imperial Bank of Commerce expect the Bank of Canada to hold the policy rate steady at 2.25% through 2026. However, the Bank of Montreal and the National Bank still believe there is room for a further 25 basis point interest rate cut, with the National Bank predicting that this step may be taken as early as next month.
BMO economists Michael Gregory and Jennifer Lee noted that there was a sense of “we’ve done all we can do right now” at Governor Tiff Macklem’s recent press conference, suggesting that the central bank’s easing policy is coming to an end.
“If economic developments are broadly consistent with the outlook in our MPR, the Governing Council would consider the current policy rate to be at the right level,” McCallum said after the decision on October 29. BMO believes this is a signal to pause interest rate cuts, although not necessarily the end of rate cuts, to leave room for a so-called “insurance move” to the policy rate of 2.00% if economic growth and inflation weaken further early next year.
The Royal Bank of Canada, on the other hand, is more steadfast in its preference to keep interest rates on hold, with economist Claire Fan arguing that resilient consumer spending and sticky underlying inflation will keep the Bank of Canada cautious.
“Strong domestic demand has led to high underlying inflation, which is why we think the Bank of Canada will have a hard time justifying a cut in overnight interest rates from 2.25 per cent to outright stimulus levels,” she wrote.
RBC’s latest forecast report outlines five key factors that are likely to keep consumer spending strong, including rising per capita consumption despite slowing population growth, easing mortgage renewal pressure after previous interest rate cuts, stronger household balance sheets and limited spillover from U.S. tariffs so far.
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Last modified: November 16, 2025
