Banking Heavyweight Updates 2025 Outlook, Foresees String of Reductions
The Bank of Canada (BoC) could soon roll out interest rate cuts at its next four meetings as the fallout from U.S. President Donald Trump’s tariffs slams the Canadian economy, according to a fresh forecast from Bank of Montreal (BMO).
BMO’s chief economist, Doug Porter, revamped the bank’s projections after Trump locked in hefty 25% tariffs on Canadian goods heading south and a 10% levy on energy and minerals, effective as of 12:01 a.m. Tuesday. The BoC’s key policy rate, Porter predicts, will tumble to 2% by July, driven by quarter-point slashes at each of the next four sessions.
With the trade landscape still murky—no one’s sure how long these tariffs will stick—Porter warned of a brutal hit to Canada’s economic engine. “Trump’s tariff sledgehammer will pound Canada’s growth,” he wrote. “If these levies linger for a year, we’re staring at a mild recession, with a couple of shrinking quarters not out of the question.”
BMO now sees Canada’s GDP shrinking by roughly 1.5% in 2025, dragged down by weaker U.S. demand for Canadian exports and tangled supply chains amid the upheaval. Unemployment might spike to around 8%, outpacing inflation pressures, though a “modest” rebound could kick in by 2026 if the tariffs lift, Porter noted.
Royal Bank of Canada (RBC) CEO Dave McKay chimed in Tuesday, pointing out that business momentum is already stalling under the tariff weight. The damage, he said, hinges on how long this trade standoff lasts.
Porter cautioned that the BoC will tread carefully, keeping tabs on inflation risks tied to Canada’s counter-tariffs and a sinking Canadian dollar. Still, he didn’t rule out the central bank diving below 2% “if inflation stays tame later this year.”