Why Scotiabank thinks the Bank of Canada is done cutting rates

General Cedric Pelletier 28 Mar

While most of Canada’s Big 6 banks expect the Bank of Canada to deliver at least one more interest rate cut this year, Scotiabank is standing firm in its view that the central bank is already done.

Bank of Canada rate outlook

While most of Canada’s Big 6 banks expect at least one more rate cut from the Bank of Canada this year, Scotiabank believes the central bank is already finished.

In its latest forecast, Scotia sees the BoC’s overnight rate holding at 2.75% through 2026—well above the 2.00% predicted by BMO and National Bank, and the 2.25% forecasted by RBC, CIBC and TD.

The reason? Uncertainty—lots of it.

In a recent report, Scotiabank’s economist Jean-François Perrault and his team argue that the Bank of Canada is likely to stay on hold for the foreseeable future due to escalating global risks, particularly from south of the border.

Tariff threats and inflation risks

Scotiabank’s economists point to escalating global uncertainties, particularly from U.S. trade policies, as a key factor influencing the BoC’s stance.

President Donald Trump has announced a 25% tariff on imported automobiles and parts, set to take effect on April 2, aiming to bolster domestic manufacturing. This move is expected to generate $100 billion annually but has raised concerns about increased costs and decreased sales for automakers reliant on global supply chains.

The unpredictability of U.S. trade actions is already impacting business sentiment, increasing uncertainty, and elevating inflation expectations. Scotiabank cautions that the BoC may need to consider raising rates—not cutting—if tariff-induced inflation pressures persist. Governor Tiff Macklem has previously emphasized that the Bank would not allow a tariff shock to become an inflation shock.

“Inflation expectations are already on the rise in Canada…” the report notes. “The balance of risks suggests the odds of lower rates may dominate… but there is a non-zero chance that Governor Macklem may need to raise interest rates if inflation outcomes merit it.”

Soft growth, but a cautious central bank

Scotiabank forecasts modest Canadian GDP growth of 1.7% in 2025 and 1.5% in 2026—soft but not recessionary.

It argues that recent rate cuts have already provided enough stimulus, and that uncertainty around global trade and inflation leaves little room for further easing.

While the odds of lower rates may dominate, Scotiabank warns there’s a real chance the Bank could be forced to raise interest rates if inflation outcomes merit it—even if growth continues to soften.

Other economists share a similar view

Oxford Economics also sees limited room for more easing. While it says one or two additional cuts are possible if tariff tensions ease, it doesn’t expect the policy rate to fall below 2.25%—the bottom of the BoC’s estimated neutral range.

“The BoC is likely done cutting interest rates as it tries to balance the negative hit to economic activity from the trade war against higher prices,” said Oxford economist Michael Davenport.

BMO Economics has also pointed to the Bank’s heightened sensitivity to inflation risks. In a recent note, the team emphasized that monetary policy can’t offset the price pressures caused by tariffs, and that the Bank remains focused on achieving its 2% inflation target.

Despite slower economic growth, BMO noted that the BoC may hesitate to deliver further easing unless conditions deteriorate more than expected.

BoC policy rate forecasts from the Big 6 banks

Current Policy Rate: Policy Rate:
Q2 ’25		 Policy Rate:
Q3 ’25		 Policy Rate:
Q4 ’25		 Policy Rate:
Q4 ’26
BMO_Logo transparent 2.75% 2.25% (-25bps) 2.00% (-25bps) 2.00% 2.00%
2.75% 2.25% 2.25% 2.25% 2.25%
National_Bank_of_Canada-Logo_transparent2 2.75% 2.50% 2.25% 2.00%
(-25bps)		 2.50%
(-25bps)
RBC logo 2.75% 2.50% 2.25% 2.25%
2.75% 2.75% 2.75% 2.75% 2.75%
2.75% 2.25% 2.25% 2.25% 2.25%

Written by the CMT Team

The Bank of Canada lowers its benchmark interest rate to 2.75%

General Cedric Pelletier 12 Mar

The Bank of Canada lowers its benchmark interest rate to 2.75%

In the face of significant geopolitical tensions, the Bank of Canada announced today that it has lowered its policy interest rate by 25 basis points. This marks the seventh reduction since June of 2024.

Below, we summarize the Bank’s commentary.

Canadian Economic Performance and Housing

  • Canada’s economy grew by 2.6% in the fourth quarter of 2024 following upwardly revised growth of 2.2% in the third quarter
  • This “growth path” is stronger than was expected when the Bank last reported in January 2025
  • Past cuts to interest rates have boosted economic activity, particularly consumption and housing
  • However, economic growth in the first quarter of 2025 will likely slow as the intensifying trade conflict weighs on sentiment and activity
  • Recent surveys suggest a sharp drop in consumer confidence and a slowdown in business spending as companies postpone or cancel investments
  • The negative impact of slowing domestic demand has been partially offset by a surge in exports in advance of tariffs being imposed
  • The Canadian dollar is broadly unchanged against the US dollar but weaker against other currencies

Canadian Inflation and Outlook

  • Inflation remains close to the Bank’s 2% target
  • The temporary suspension of the GST/HST lowered some consumer prices, but January’s Consumer Price Index was “slightly firmer” than expected at 1.9%
  • Inflation is expected to increase to about 2.5% in March with the end of the tax break
  • The Bank’s preferred measures of core inflation remain above 2%, mainly because of the persistence of shelter price inflation
  • Short-term inflation expectations have risen in light of fears about the impact of tariffs on prices

Canadian Labour Market

  • Employment growth strengthened in November through January and the unemployment rate declined to 6.6%
  • In February, job growth stalled
  • While past interest rate cuts have boosted demand for labour in recent months, there are warning signs that heightened trade tensions could disrupt the recovery in the jobs market
  • Meanwhile, wage growth has shown signs of moderation

Global Economic Performance, Bond Yields and the Canadian Dollar

  • After a period of solid growth, the US economy looks to have slowed in recent months, but US inflation remains slightly above target
  • Economic growth in the euro zone was modest in late 2024
  • China’s economy has posted strong gains, supported by government policies
  • Equity prices have fallen and bond yields have eased on market expectations of weaker North American growth
  • Oil prices have been volatile and are trading below the assumptions in the Bank’s January Monetary Policy Report

Rationale for a rate cut

While the Bank offered that economic growth came in stronger than it expected, the pervasive uncertainty created by continuously changing US tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest. Against this background, and with inflation close to the 2% target, the Bank decided to reduce its policy rate by 25 basis points.

Outlook

The Bank notes that the Canadian economy entered 2025 “in a solid position,” with inflation close to its 2% target and “robust” GDP growth. However, heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada. The economic outlook continues to be subject to more-than-usual uncertainty because of the rapidly evolving policy landscape.

Written by my FN marketing Team.

Trump Did It–Trade War Starts Today

General Cedric Pelletier 4 Mar

Trump has imposed tariffs of 25% on goods coming from Mexico and Canada, 10% on Canadian energy, and an additional  10% on goods from China. He justified these actions by claiming they would force Mexico and Canada to address issues related to undocumented migration and drug trafficking. However, while precursor chemicals for fentanyl come from China and undocumented migrants enter through the southern border with Mexico, Canada accounts for only about 1% of both issues.

The Wall Street Journal, typically considered a conservative publication, criticized Trump, labelling this as the “dumbest trade war in history.” The Journal stated, “Mr. Trump sometimes sounds as if the US shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in or one that we should want to live in, as Mr. Trump may soon find out.”

This misguided tariff policy will cause untold damage to the global economy, including the US. Americans will suffer the impact of higher prices and shortages of key products imported from Canada and Mexico. The various North American free trade agreements aimed to improve manufacturing efficiencies and meld the three economies to maximize productivity and the free flow of essential inputs into production. Canada is the number one supplier of steel and aluminum and there are no readily available substitutes for these crucial inputs. A plethora of products and construction activity use steel and aluminum. Aluminum is produced in Quebec where hydroelectricity is plentiful and cheap. US farmers depend on Canadian potash and auto parts, and Canada is the number one exporter of oil and gas to the US.

Consider the US auto industry, which operates as a North American entity due to the highly integrated supply chains across the three countries. In 2024, Canada supplied nearly 13% of US auto parts imports, while Mexico accounted for almost 42%. Industry experts note that a vehicle produced on the continent typically crosses borders multiple times as companies source components and add value most cost-effectively.

This integration benefits everyone involved. According to the Office of the US Trade Representative, the industry contributed more than $809 billion to the US economy in 2023, representing about 11.2% of total US manufacturing output and supporting 9.7 million direct and indirect US jobs. In 2022, the US exported $75.4 billion in vehicles and parts to Canada and Mexico. According to the American Automotive Policy Council, this figure rose 14% in 2023, reaching $86.2 billion.

Without this trade, American car makers would struggle to compete. Regional integration has become an industry-wide manufacturing strategy in Japan, Korea, and Europe. It leverages high-skilled and low-cost labour markets to source components, software, and assembly.

As a result, US industrial capacity in automobiles has grown alongside an increase in imported motor vehicles, engines, and parts. From 1995 to 2019, imports of these items rose by 169%, while US industrial capacity in the same categories increased by 71%. Thousands of well-paying auto jobs in states like Texas, Ohio, Illinois, and Michigan owe their competitiveness to this ecosystem, which relies heavily on suppliers in Mexico and Canada.

Tariffs will also cause mayhem in the cross-border trade of farm goods. In fiscal 2024, Mexican food exports comprised about 23% of US agricultural imports, while Canada supplied some 20%. Many top US growers have moved to Mexico because limits on legal immigration have made it hard to find workers in the US. Mexico now supplies 90% of avocados sold in the US.

Yesterday, the President’s tariff announcement led to an immediate sell-off in stock markets worldwide. Bonds, seen as a safer haven, rallied sharply, taking longer-term interest rates down sharply in anticipation of a meaningful slowdown in economic activity. The Canadian dollar sold off sharply, though it clawed back some of its losses overnight. WTI oil prices dropped 2% yesterday and continued to decline today.

Bottom Line

This is a lose-lose situation and President Trump underestimates the negative fallout of his actions at home and abroad. Retaliation will be swift. Americans will balk at the disruption of supply chains (think waiting for months for a new car) and the increase in the price of many products.

Legendary investor, Warren Buffet, called the tariffs an “act of war.”

Before the tariffs were imposed, we expected roughly 2% growth this year. Assuming the tariffs remain in place for a year, the Canadian economy will plunge into recession. We will likely see a few quarters of negative growth before growth gradually resumes.

Despite the inflation risk, the Bank of Canada will respond aggressively to minimize the meltdown in labour markets and the economy in general. When the Governing Council meets again on March 12, we expect another 25 bps cut in the overnight policy rate, bringing it down to 2.75%. Over the next year, we expect the Bank to continue to ease credit conditions, and a 2.0% overnight rate is likely.

The Canadian 5-year yield, a bellwether for setting fixed mortgage rates, has fallen to 2.51%, its lowest level in nearly three years. Lower interest rates are favorable for housing markets, although the inevitable rise in unemployment and drop in spending will mitigate this effect.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Spring Forward: Preparing Your Finances for the Home-Buying Season

General Cedric Pelletier 3 Mar

Spring is one of the busiest seasons in the real estate market, with buyers eager to find their dream home before summer.

If you’re planning to purchase a home in Spring 2025, now is the time to get your finances in order.
Being financially prepared can help you secure a mortgage with favorable terms and make your home-buying journey smoother. Here’s how to get ready:

1. Check and Strengthen Your Credit Score

Your credit score is one of the most important factors in mortgage approval, influencing both your eligibility and the interest rate you’ll receive. A higher score can save you thousands over the life of your mortgage, so it’s worth taking the time to improve it.

  • Start by checking your credit report for errors, and if you spot any inaccuracies, dispute them immediately.
  • Pay down outstanding debts to lower your credit utilization ratio, which plays a big role in your score.
  • Avoid opening new lines of credit in the months leading up to your mortgage application, as this can temporarily lower your score.
  • By reaching out to me, I can help preserve your credit score as they will pull your credit report once to shop your application. Note: Multiple credit checks in a short period can lower your credit score.

2. Build a Strong Down Payment

The more you can put down up front, the better. A larger down payment can reduce your monthly mortgage costs, give you access to better loan terms, and, in some cases, eliminate the need for mortgage insurance.

  • Set a savings goal based on home prices in your target area so you have a clear plan.
  • Explore first-time homebuyer programs that offer down payment assistance—there are plenty of government and lender-based options.
  • Make saving a habit by automating deposits into a dedicated home savings account.
  • Avoid moving your money around to multiple accounts prior to applying for your mortgage. Lenders require a 90-day history of your down payment and a history of moving your money around can make this more difficult to easily verify your down payment.

3. Reduce Your Debt-to-Income Ratio (DTI)

Lenders use your debt-to-income ratio (DTI), aka GDS/TDS, to assess how comfortably you can handle a mortgage payment on top of your existing obligations. A lower DTI signals financial stability, improves your chances of loan approval and can expand your borrowing power.

  • Work on paying off high-interest debts or debts with high monthly payments, like credit cards and personal loans, to free up more of your income.
  • Hold off on making large purchases or taking on new loans, such as car financing, before applying for a mortgage.
  • If possible, look for ways to increase your income—whether through a raise, side gig, or freelance work—to strengthen your financial standing. Note self employed income or part time non guaranteed hours employment generally require a 2-year history.

4. Get Pre-Approved for a Mortgage

A mortgage pre-approval is a game-changer in a competitive market. It gives you a clear budget, shows sellers that you’re a serious buyer, and can even speed up the closing process.

  • Start gathering essential documents like tax returns, pay stubs, and bank statements—lenders and myself will need these to assess your financial health.
  • Reach out to me today for information to help you compare mortgage rates and terms, ensuring you get the best deal.
  • Take time to discuss your mortgage options with me, from fixed to variable rates, different term lengths, or special programs available to you.
  • Download my mobile mortgage app.

5. Budget for Additional Costs

The home price isn’t the only expense you’ll need to plan for. Homeownership comes with extra costs that can catch buyers off guard if they’re not prepared.

  • Closing costs typically range from 1.5% to 4% of the home’s purchase price, covering legal fees, land transfer taxes, and more. This is money you need on top of your down payment
  • Property taxes, Condo fees and homeowners’ insurance can add to your monthly expenses—make sure to factor them into your budget.
  • Set aside a fund for home maintenance and emergency repairs to avoid financial strain when unexpected expenses arise.

6. Research the Housing Market

Spring is a competitive time to buy, so being well-informed about the market can give you an edge.

  • Keep an eye on housing prices in your preferred neighborhoods to understand trends and pricing expectations.
  • Stay updated on current interest rates, as they directly impact affordability and your monthly payments.
  • Work with a trusted real estate agent who can help you navigate bidding wars, negotiate offers, and find the right home for your needs.

7. Consider Locking in an Interest Rate

Interest rates can fluctuate, and even a small increase can affect your monthly payments. If rates are expected to rise, securing a lower rate in advance could save you money over time.

  • Ask me about rate lock options and how long they’re valid for. Rate holds on average are valid for 120 days before they expire and a new rate hold period is requested
  • Compare fixed and variable rates to see which aligns best with your financial goals.
  • Keep an eye on Bank of Canada rate announcements and economic trends that could impact mortgage rates. Note: With recent Bank of Canada announcements variable rates which are tied to Prime are dropping.

Taking these steps now will set you up for success. The more financially prepared you are, the smoother the process will be—and the better your chances of landing your dream home at the right price.

Written by my DLC Marketing team