The Bank of Canada is expected to pause further interest rate cuts as it steers through a turbulent economic environment marked by U.S. tariffs and mixed signals at home. After reducing its benchmark interest rate by 25 basis points in March, the central bank has held it steady at 2.75 percent through April and June. With the next policy announcement due on July 30, many economists anticipate another hold.
Recent job market gains and inflation hovering around 3 percent are key factors supporting a cautious stance. While rate cuts are typically used to stimulate economic activity, their effectiveness is being questioned in the current environment. Frances Donald, Chief Economist at RBC, notes that sectors like manufacturing and housing are facing headwinds, but it’s unclear whether further rate reductions would address trade-related challenges.
Donald also highlights that interest rate policy applies uniformly across the country, despite regional economic differences. In Windsor, Ontario—where U.S. tariffs have taken a toll—unemployment exceeds 11 percent, compared to under 4 percent in Victoria, B.C. She suggests that broad rate cuts may not be the most effective solution in such cases and advocates for targeted federal fiscal support instead.
RBC points out that the central bank has already cut rates by 2.25 percentage points over the past year, and those cuts are still filtering through the economy. With consumer spending holding up and business sentiment showing signs of recovery, RBC forecasts modest economic growth without the need for additional rate reductions.
Opinions among other economists vary. Oxford Economics believes Canada is already in recession but still expects no more rate cuts, citing inflation concerns linked to persistent tariffs and supply chain disruptions. Maintaining current rates, they argue, would help control future price pressures.
BMO, on the other hand, forecasts up to three more cuts by March 2026. However, even BMO Chief Economist Doug Porter acknowledges that market sentiment has shifted, with expectations now leaning toward a single additional cut. He also points to increased government infrastructure and defense spending as factors that could reduce the need for monetary stimulus.
Stephen Brown of Capital Economics sees room for further easing, citing unemployment near 7 percent and underused economic capacity. He anticipates the policy rate dropping to 2.25 percent before the easing cycle concludes.
For now, the Bank of Canada remains in a holding pattern, positioned within its neutral range—neither stimulating nor restricting economic activity. This neutral stance gives policymakers the flexibility to adapt as conditions evolve. As Donald observes, the Bank could remain at this level for one to two years, poised to act depending on future developments.