Today’s Inflation Report Poses a Conundrum for the Bank of Canada

General Cedric Pelletier 20 May

The headline inflation report for April showed a marked slowdown in the Consumer Price Index (CPI), which rose a mere 1.7% year over year (y/y), down sharply from the 2.3% rise in March. The slowdown in April was driven by lower energy prices, which fell 12.7% following a 0.3% decline in March. Excluding energy, the CPI rose 2.9% in April, following a 2.5% increase in March.

Higher prices for travel tours (+6.7%) and food purchased from stores (+3.8%) moderated the slowdown in the CPI in April.

The CPI fell 0.1% in April, and it was down 0.2% on a seasonally adjusted monthly basis.

Gasoline led the decline in consumer energy prices, falling 18.1% y/y in April, following a 1.6% decline in March. The removal of the consumer carbon price tax mainly drove the price deceleration in April. Lower crude oil prices also contributed to the decline. Global oil demand decreased due to slowing international trade related to tariffs. In addition, supply from the Organization of the Petroleum Exporting Countries and its partners (OPEC+) increased.

Year over year, natural gas prices fell 14.1% in April after a 6.4% gain in March. The removal of the consumer carbon price contributed to the decline.

The dramatic decline in energy prices reflects the global economic slowdown caused by President Trump’s tariff mayhem.
The core inflation measures exceeded expectations last month, with the trimmed rate increasing to 3.1% y/y and the median rate rising to 3.2% y/y—above the target inflation range. The three-month moving average of the core rates rose to 3.4%, from 2.9% previously.

Food Prices Rose Sharply
In April, prices for food purchased from stores increased faster, increasing 3.8% year over year compared with 3.2% in March. Prices for food purchased from stores have grown faster than the all-items CPI for three consecutive months.

The most significant contributors to the year-over-year acceleration in April were fresh vegetables (+3.7%), fresh or frozen beef (+16.2 %), coffee and tea (+13.4 %), sugar and confectionery (+8.6%), and other food preparations (+3.2%).

Prices for food purchased from restaurants rose faster in April, increasing 3.6% yearly, following a 3.2% gain in March.

Excluding food and energy, this measure of core inflation rose a less troubling 2.6% y/y, up from 2.4%

CPI ex food & energy was less troubling at 2.6% y/y (up from 2.4%).

Another area reflecting trade war pressure is that vehicle prices rose 0.9% m/m, lifting the annual rate to almost 3%—these prices dipped 0.1% for all of 2024. Auto insurance also kicked in with an unhelpful 0.9% m/m rise, lifting the annual rate to 7.7%. In the meantime, shelter costs mostly moderated, partly due to the sharp fall in natural gas prices, but it was also helped by further moderation in mortgage interest costs (6.8% y/y vs 7.9%). However, rents perked back up slightly to 5.2% y/y, after slipping for most of the past year from a peak of nearly 9%.
Bottom Line

This report will reinforce the Bank of Canada’s cautious stance on easing to mitigate the impact of tariffs. Traders in overnight swaps lowered bets that the central bank will cut rates at its next meeting, putting the odds under 40% compared with nearly 70% before the release.

It will be a close call for the Bank of Canada, but even if they don’t cut rates in June, more rate cuts this year are likely.

Written by the DLC Chief Economist Dr. Sherry Cooper

Understanding Mortgage Penalties

General Cedric Pelletier 15 May

Many homeowners—especially those without a mortgage broker—don’t fully understand mortgage penalties. And I get it! Financing a home can be overwhelming. But if you’re considering refinancing, selling, making a lump sum payment, or need a way out, read this first.
The most common mortgage penalty my clients encounter is a prepayment penalty. Did you know? Your lender doesn’t want their money back early! That’s because they earn guaranteed interest on the loan, helping them not only budget but also profit. Let’s go over the types of prepayment penalties:

Prepayment or Overpayment: If you make a lump sum payment on your mortgage or increase the regular payments by too much, you could be outside the terms of your mortgage agreement.

Transferring: If you move your mortgage to another lender before the end of your term, that is considered breaking the mortgage agreement you made.

Early Re-Payment: If you sell your home and pay off your lender with the proceeds, leaving you without a mortgage, that also breaks the agreement.

Breaking your mortgage for these—or any other reason—almost always results in financial penalties. The amount of the penalty that could be owed will be based on a few factors:

  • The amount of pre- or over-payment
  • Interest rates (existing and new)
  • The type of mortgage (open, closed) and the type of rate (fixed, variable)

How can you reduce or avoid prepayment fees?

The simplest answer is to wait until the end of your existing term to make changes. If that’s not possible, let’s review your circumstances:

  • Do you have a fixed or variable rate? If you have a variable rate and you’re breaking the mortgage in favour of a fixed option, first check to see if you can lock in a rate under your existing terms
  • Are you making a lump-sum payment? Review the terms of your mortgage to see what your annual prepayment allowance is. Most mortgages will let you make some fixed lump sum payments without any penalties

Penalties for non-payment

There’s also a flip side to penalties, which involves incurring a penalty because you’re making a late payment or missing payments.

You won’t be surprised that any payment received after the due date will incur a fee. Lenders will also report the missed payment to the credit bureau, which will impact your credit score. Before you miss a payment, the best thing you can do is to notify your lender (especially before it happens) and let them know. You can work together to defer a payment, skip a payment, or make other alternative arrangements.

If you’re with a lender that offers it, consider taking a ‘mortgage payment holiday’ and either skipping or deferring payments for a specific amount of time. Some lenders allow up to 3-6 months or possibly longer, depending on the circumstances.

If you have already missed a payment, you should make up that late or missed payment as soon as possible to avoid a quickly escalating situation.

When can penalties be worthwhile?

It is important to note that sometimes, paying a penalty can be worthwhile—especially if you’re locked into a higher-rate mortgage and the savings from breaking it and securing a lower rate outweigh the penalty costs. I can help you with this determination! I can help you determine if this makes financial sense for you.

An alternative to mortgage penalties

If you’re likely to break your mortgage agreement, consider an open mortgage. This is a great short-term solution for anyone who has an inheritance coming up, is planning a move out of town, or perhaps getting married (or divorced) and planning to combine (or separate) assets. You regularly pay the mortgage as long as you need it, but when you sell the property—no worries. This option does typically come with higher rates, but the benefit is that there are no penalties to pay it off at any time.

Whatever type of mortgage penalty you might be facing, my best recommendation is to talk to me for expert advice. Do this before you make any commitments so we can go over the fine print and you can understand what you’re getting into! I always take the time to do this with my clients, and I would be happy to assist you also.

Written by my DLC Marketing Team

Liberal election win: What it means for Canada’s policies and economy

General Cedric Pelletier 2 May

The Liberals, under the new leadership of Mark Carney, have secured a fourth consecutive term in office following Monday’s federal election, forming another minority government.

Mark Carney election win

With 168 seats—just shy of the 172 needed for a majority—the party will once again rely on support from the NDP or Bloc Québécois to advance its agenda.

While the result maintains the status quo in terms of party balance, the change in leadership is expected to bring notable shifts in fiscal and housing policy.

Fiscal stimulus and deficit outlook

The Liberal platform includes $77 billion in new fiscal stimulus over four years, funded by larger deficits.

According to Oxford Economics, the plan represents 2.5% of 2024 GDP, with spending focused on “increased defence spending, infrastructure projects, and new housing construction alongside personal and corporate tax cuts.”

The Parliamentary Budget Officer estimates the federal deficit will rise to $62.3 billion, or 2% of GDP, in 2025–26 under the Liberal plan. That compares to a baseline deficit of $46.8 billion, or 1.5% of GDP.

CIBC’s Avery Shenfeld notes that “deficits are likely to somewhat exceed what the Liberals suggested during the campaign,” particularly if economic growth underperforms.

“Odds of the deficit topping 2% of GDP are likely more material than an undershoot,” he wrote.

Economic outlook: Stimulus helps, but a recession still looms

Economists say the Liberals’ spending plans will give the economy a bit of a cushion—but not enough to avoid a mild recession. Both Oxford Economics and BMO expect the new fiscal stimulus to soften the blow from the global trade war, though not completely offset it.

According to Oxford, the measures would add about 0.2 percentage points to GDP growth next year and 0.6 points in 2026. “The economy would still experience a downturn beginning in Q2 of this year,” the firm said, “but the recession would be shallower and shorter.”

BMO’s Robert Kavcic put it this way: “Even after accounting for Canada’s retaliatory tariffs to raise $20 billion… the net new stimulus under the Liberal platform is +0.5% of GDP in FY25/26.”

Still, he warned there are risks. If the economy underperforms, “there is further downside risk to the fiscal outlook,” he said, particularly if growth comes in lower than expected.

Housing and mortgage-related policies

The Liberal platform included several housing-focused measures aimed at improving affordability and boosting supply.

One of the headline promises is to remove the GST on new homes under $1 million for first-time buyers—something that could help bring down costs for those entering the market

The party is also planning to unlock over $25 billion in financing to support new affordable housing builds across the country.

Other key measures include a 1% cut to the lowest federal income tax bracket and a rollback of the recent increase to the capital gains inclusion rate—a move that could benefit both homeowners and investors.

There’s cross-party support on many of these initiatives. “Most parties support the removal of GST from new homes, in some form,” noted BMO’s Robert Kavcic. He also pointed out that the Bloc and NDP both back large-scale infrastructure spending, with the NDP in particular pushing for more investment in public transit.

The Liberals are also planning a shift in carbon pricing, scrapping the consumer carbon tax while keeping a system in place for big emitters. They’re also proposing tariffs on imports from countries that don’t have similar climate policies.

Bank of Canada rate outlook and market response

With the Liberals planning a large dose of fiscal stimulus, economists say the Bank of Canada may take a more cautious approach to cutting interest rates.

As Oxford Economics put it, with government spending “doing most of the heavy lifting,” the central bank is likely to keep its policy rate steady—for now.

That said, rate cuts are still expected. BMO is forecasting 75 basis points of cuts by the end of the year, while markets are pricing in something closer to 50 basis points.

“The budget will be a factor in determining the depth of those cuts,” said BMO’s Benjamin Reitzes.

As for financial markets, the election result didn’t cause much of a stir. The Canadian dollar and government bond yields were largely unchanged. According to BMO, investors are more focused on what the upcoming federal budget will reveal, and how trade talks with the U.S. might unfold in the weeks ahead.

Written by the CMT Team

How an FHSA Can Help You Buy Your First Home Faster 🏡

General Cedric Pelletier 22 Apr

Who loves some tax saving and money back?

I wanted to share some valuable information about the First Home Savings Account (FHSA)—a new and powerful tool available to help first-time homebuyers save for a home more efficiently.

What is an FHSA?

The FHSA is a tax-advantaged savings account introduced by the Canadian government to help first-time homebuyers save for a down payment. It combines the best features of an RRSP and a TFSA:

  • Contributions are tax-deductible (like an RRSP), which can reduce your income taxes.

  • Withdrawals for your first home purchase are completely tax-free (like a TFSA).

  • You can contribute up to $8,000 per year, with a lifetime limit of $40,000.

  • Unused contribution room can be carried forward (up to $8,000/year), making it flexible and easy to catch up if needed.

Why Open and Maximize an FHSA?

  1. Tax Savings – Get a break on your income taxes now while saving for your future home.

  2. Faster Growth – Investments inside an FHSA grow tax-free, helping your money grow faster.

  3. Stack with RRSP – You can use both your FHSA and RRSP under the Home Buyers’ Plan for an even larger tax-free down payment.

  4. No Repayment Required – Unlike the RRSP Home Buyers’ Plan, withdrawals from an FHSA do not have to be repaid.

My Recommendation

If you’re eligible, opening an FHSA as soon as possible allows you to start accumulating contribution room and taking advantage of the tax benefits right away—even if you’re not buying for a few years.

If you’d like help setting one up or have questions about your next mortgage strategy, I’d be happy to walk you through the options.

Call me to connect and get on that home ownership journey 🙂

Tariffs Dampen Canada’s Spring Housing Season.

General Cedric Pelletier 16 Apr

Global Tariff Uncertainty Sidelines Buyers

Canadian existing home sales plunged last month as tariff concerns again mothballed home-buying intentions. Consumer confidence has fallen to rock-bottom levels as many fear the prospect of job losses and higher prices.

According to data released today by the Canadian Real Estate Association, existing home sales declined by 4.8% month-over-month. Along with declines in the three previous months, national home sales are now down 20% from their recent high recorded last November.

“Up until this point, declining home sales have mostly been about tariff uncertainty. Going forward, the Canadian housing space will also have to contend with the actual economic fallout. In short order we’ve gone from a slam dunk rebound year to treading water at best,” said Shaun Cathcart, CREA’s Senior Economist.

While the largest of these declines has been seen in Ontario and British Columbia, sales have been down over the last few months in all but a handful of small markets across the country.

On a non-seasonally adjusted basis, the overall Canadian sales total for March 2025 fell 9.3% year-over-year and was the lowest for that month since 2009.

New Listings

New supply moved up by 3% month-over-month in March. Combined with the decrease in sales, the national sales-to-new listings ratio fell to 45.9% compared to 49.7% in February. The March level for this measure of market balance is the lowest since February 2009. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings between 45% and 65% generally consistent with balanced housing market conditions.

At the end of March 2025, 165,800 properties were listed for sale on all Canadian MLS® Systems, up 18.3% from a year earlier but still below the long-term average (around 174,000 listings) for this time of year.

“While the trend of falling monthly sales has been observed across Canada over the last few months, there are still many regions where sales are high, inventory is near record lows, and prices are rising,” said Valérie Paquin, newly installed Chair of CREA’s 2025-2026 Board of Directors. “There are also parts of the country with historically low sales and the highest inventory levels in a decade or more.”

At the end of March 2025, there were 5.1 months of inventory nationwide, the highest level since the early months of the pandemic. The long-term average for this measure is five months of inventory.

 

Home Prices

The National Composite MLS® Home Price Index (HPI) declined by 1% from February to March 2025, marking the largest month-over-month decrease since November 2023.

The renewed price softening was most notable in British Columbia and Ontario’s Greater Golden Horseshoe. Prices have continued to push higher across much of the Prairies, Quebec, and the East Coast.

The non-seasonally adjusted National Composite MLS® HPI was down 2.1% compared to March 2024.

The nonseasonally adjusted national average home price was $678,331 in March 2025, down 3.7% from March 2024.

Bottom Line

Before the tariff threats emerged, the housing market was poised for a strong rebound as the spring selling season approached.

Unfortunately, the situation has only deteriorated as business and consumer confidence have fallenen sharply. While the first-round effect of tariffs is higher prices as importers attempt to pass off the higher costs to consumers, second-round effects slow economic activity, reflecting layoffs and business and household belt-tightening.

The Bank of Canada will undoubtedly come to the rescue this year by further slashing interest rates. This is particularly important for Canada, where interest-rate sensitivity is far higher than in the US. But traders are betting that the odds of another 25 bps rate cut tomorrow are no better than even.

The economy is slowing, and inflation fell more than expected in March. Next month’s inflation data are also likely to improve, reflecting the elimination of the carbon tax. This keeps the possibility of an April rate cut open, but even if the Bank of Canada takes a pass this month, we estimate they will cut the overnight rate three more times this year, taking it down 300 bps from its peak last year. This will finally spur buyers off the sidelines, but the timing of this rebound is more uncertain than usual, given the chaos in the White House.

Writter by our Chief Economist, DR Sherry Cooper

Refinancing Your Mortgage in 2025.

General Cedric Pelletier 11 Apr

Refinancing your mortgage can be a smart financial move for many reasons, and as your trusted mortgage advisor, I’ve seen how much it can benefit homeowners!

Ideally, refinancing is done at the end of your mortgage term to avoid penalties, but the timing can vary depending on your goals. For some, it’s about unlocking the equity in their home to fund renovations or cover big expenses like college tuition. For others, it’s an opportunity to consolidate debt, lower their interest rate, or change up their mortgage product.

Let’s take a closer look at some of the ways refinancing your mortgage can help!

  • Get a Better Rate: As interest rates have continued to decrease with the Bank of Canada updates these past few months, now is a great time to consider refinancing for a better rate and lower overall mortgage payments!  Experts anticipate the Bank of Canada will move to have the overnight rate down to 4.0% at year-end and potentially down to 2.75% for 2025.
  • Consolidate Debt: When it comes to renewal season and considering a refinance, this is a great time to review your existing debt and determine whether or not you want to consolidate it onto your mortgage. In most cases, the interest rate on your mortgage is less than you would be charged with credit card companies or other forms of financing you may have. Plus, having all your debt consolidated into a single payment can keep you on track!
  • Unlock Your Home Equity: Do you have projects around the house you’ve been dying to get started on? Need funds for a large purchase such as a new vehicle or post-secondary education? When you are looking to renew your mortgage, it is a great opportunity to consider refinancing in order to take advantage of the home equity you have built up to help with these larger changes in your life!
  • Change Your Mortgage Product: Are you unhappy with your existing mortgage product? If you have a variable-rate or adjustable-rate mortgage, you may be considering locking it in at the lower rates. Alternatively, you may want to switch your current fixed-rate mortgage to a variable option with the interest rates expected to continue decreasing into 2025. You can also utilize your refinance to take advantage of a different payment or amortization schedule to help pay off your mortgage faster!

PLUS! Some latest changes by the Government of Canada will make it even easier for you when it comes to your renewal and refinancing options:

  • Those of you who may have an uninsured mortgage will no longer have to pass the stress test as of November 21st. This means that you have more flexibility when it comes to rates and mortgage products in renewal cases where you wish to switch lenders without adding additional funds to your mortgage!
  • Beginning January 15, the federal government will allow default-insured mortgages to be refinanced to build a secondary suite. If you’ve been considering adding a suite to your property, you may be eligible to access up to 90% of your home’s equity for this purpose.

No matter your plans or situation, please don’t hesitate to reach out to a DLC Mortgage Expert!

Weak Canadian job growth in March and rising unemployment is the first harbinger of a trade-war induced economic slowdown.

General Cedric Pelletier 4 Apr

Weak Canadian Job Creation Is The First Fallout From The Trade War

Today’s Labour Force Survey for March was weaker than expected. Employment decreased by 33,000 (-0.2%) in March, the first decrease since January 2022. The decline in March followed little change in February and three consecutive months of growth in November, December and January, totalling 211,000 (+1.0%).

The employment rate—the proportion of the population aged 15 and older—fell 0.2 percentage points to 60.9% in March. This partially offsets an increase of 0.3 percentage points observed from October 2024 to January 2025.

Private sector employment fell by 48,000 (-0.3 %) in March, following little change in February and a cumulative increase of 97,000 (+0.7%) from November 2024 to January 2025. On a year-over-year basis, the number of employees in the private sector was up by 175,000 (+1.3%).

Public sector employment was little changed for a third consecutive month in March, up 92,000 (+2.1%) compared with a year earlier. Self-employment was also little changed in March, up 81,000 (+3.0%) on a year-over-year basis. Economists expected the trade war to weigh on the Canadian labour market in March. Market participants expected zero employment gains as steel & aluminum tariffs hit jobs in the sector. While we haven’t seen broad-based layoffs yet, automaker Stellantis NV temporarily halted production at assembly plants in Windsor, ON and Mexico, laying off 3,200 people in Canada, 2,600 in Mexico and 900 at six U.S. factories. The pressure from those and broader non-USMCA-compliant tariffs was expected to drive stagnant job growth in the month. At 6.7%, the jobless rate met expectations, still two ticks shy of November’s cycle high.

Employment could experience a further downside over the coming months, depending on how the tariff backdrop evolves. Average hours worked could see an even bigger hit as work-sharing programs come into effect due to pressure on manufacturing production.

The unemployment rate rose 0.1 percentage points to 6.7% in March, the first increase since November 2024. It had trended up from 5.0% in March 2023 to a recent high of 6.9% in November 2024 before falling by 0.3 percentage points from November 2024 to January 2025 in the context of robust employment growth at the end of 2024 and in early 2025.

Since March 2024, the unemployment rate has remained above its pre-COVID-19 pandemic average of 6.0% (from 2017 to 2019).

In total, 1.5 million people were unemployed in March, up 36,000 (+2.5%) in the month and up 167,000 (+12.4%) year over year.

Among those unemployed in February, 14.7% became employed in March. This was lower than the corresponding proportion in March 2024 (18.6%) (not seasonally adjusted). Long-term unemployment has also risen; the proportion of unemployed people searching for work for 27 weeks or more stood at 23.7% in March 2025, up from 18.3% in March 2024.

Total hours worked rose 0.4% in March, following a decline of 1.3% in February. On a year-over-year basis, total hours worked were up 1.2%.

Average hourly wages among employees were up 3.6% (+$1.24 to $36.05) year over year in March, following growth of 3.8% in February (not seasonally adjusted).

Fewer people are employed in wholesale and retail trade, information, culture, and recreation.

Wholesale and retail trade employment fell by 29,000 (-1.0 %) in March, partly offsetting an increase of 51,000 in February. On a year-over-year basis, the number of people working in wholesale and retail trade was little changed in March.

Chart 3 
Employment declines led by wholesale and retail trade in March

Following five months of little change, employment in information, culture, and recreation decreased by 20,000 (-2.4%) in March. Despite the decline, employment in this industry changed little on a year-over-year basis.

In March, employment also fell in agriculture (-9,300; -3.9%), while there were gains in “other services” (such as personal and repair services) (+12,000; +1.5%) and in utilities (+4,200; +2.8%).

Bottom Line

US employment data for March were also released this morning. In direct contrast to Canada, US job growth beat forecasts in March, and the unemployment rate edged up, pointing to a healthy labour market before the global economy gets hit by widespread tariffs.

Canada’s job market stalled in March, shedding the most jobs in over three years. The job loss was the first in eight months, with trade-exposed sectors driving some declines.

The threats and implementation of US President Donald Trump’s tariffs and Canada’s retaliating levies have weighed on the Canadian jobs market over the past two months. However, with the country dodging the latest round of so-called reciprocal tariffs this week, the Bank of Canada may have more time to weigh economic weakness against rising price pressures.

Stocks have fallen the most since March 2020–the beginning of Covid, and bonds are rallying causing market-driven interest rates to drop precipitously. The Bank of Canada meets again on April 16. The day before, Canadian inflation data for March will be released. This will be a crucial report as the central bank assesses the tug-of-war between tariff-induced inflation and unemployment. Currently, traders are betting there is only a 33% chance of a 25 bps rate cut later this month. While the BoC might take a pass this month, the coming slowdown in the Canadian economy will warrant rate cuts in June, if not sooner.

Written by DR. Sherry Cooper from DLC team

Gardening 101: Your Spring Gardening Checklist

General Cedric Pelletier 2 Apr

 

If you want to maximize returns on your gardening efforts, we’ve got 3 strategies to take you from garden simp to master plant manipulator.

Strategy 1: Better late than early

Seeds do best when they have an uninterrupted growth phase.
So rather than having your plants stall out in a frost, wait 2 weeks (you can do it!) after your initial instinct to plant. It may seem like it’s too late, but the plants will put it into overdrive and make it work. If you’re in doubt and want to test this theory out, plant half the seeds early, and half the seeds 2 weeks later, and see which does better by the end of the growing season. If you’re new to gardening, you might not have a clue if your tomatoes should go in March 1 or July 1, and that’s totally okay too. The Farmer’s Almanac comes to your rescue with their 2025 updated guideline of when to plant based on your postal code. Click here for details.

Strategy 2: Layout matters

Think measure once, cut twice – but for your garden. First up, arrange the tallest plants on the north side of your garden, and the shortest plants on the south side. This will make sure both your little gem lettuces and the jolly green giant snap peas both get enough sunlight. Second, do your research on how much space each plant needs to thrive so you can plan enough real estate for everyone. This website will help you with both these action items for 71 different vegetables. And don’t be afraid to actually measure ou t your garden. Putting string dividers in there will help you achieve the perfect layout.

Strategy 3: Weed prevention

Prevention is the best way to avoid destroying your back weeding all spring and summer. This is a bit boujee, but if you don’t have raised garden beds it might just be for you. Putting down a layer of cardboard, then adding a 5-10cms of mulch on top, makes sure the weeds stay underneath while the worms and other goodies stay on top, working hard for your soil and plants. If cardboarding your garden isn’t in the cards, just make sure that there is no open soil. If you can see it, so can a weed! Covering the dirt with a layer of mulch (doesn’t have to be fancy mulch, it can just be lawn clippings, sawdust, and the fall leaves you never bothered to rake up and put out on the curb) will prevent most weeds from having the opportunity to grow in the first place.

Hopefully these tips make you the CEO of your own garden in 2025. If you try something new based on what you read here, send me a pic or a note. I’d love to know what’s working for you and share your advice on my socials!

Written by my DLC marketing team

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.

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