As the Bank of Canada (BoC) prepares for what is expected to be its fourth consecutive interest rate cut this year, several leading banks predict that the rate-cutting cycle is far from over. Economists are forecasting further reductions, potentially lowering the BoC’s policy rate to 2.00% over the next 14 months. This signals more relief ahead for borrowers.
Anticipated Rate Cuts
Both RBC and National Bank, along with Caisse Desjardins, forecast another 175 basis points (1.75%) of rate cuts by the end of 2025. This would bring the prime lending rate to around 4.20% at major lenders—a level not seen since early 2022. Homeowners with variable-rate mortgages and those with home equity lines of credit (HELOCs) stand to benefit significantly, as lower rates would reduce monthly payments.
Meanwhile, CIBC anticipates a less aggressive rate path, projecting a BoC policy rate of 2.25% by the end of 2025. BMO and TD Bank forecast a more modest decline to 2.50%. Scotiabank, however, expects the least easing, predicting the overnight rate to fall only to 3.00% by the end of 2025.
Market Expectations
Market participants expect the BoC to deliver a “supersized” rate cut this week due to cooling inflation and a weakening job market. If this unfolds, it would mark a significant shift in Canada’s monetary policy, aimed at stabilizing the economy after a period of aggressive rate hikes.
Impact on Borrowers
For homeowners with variable-rate mortgages and HELOCs, these potential rate cuts offer much-needed relief. Lower rates would lead to reduced interest costs and smaller monthly payments, easing financial pressure on Canadian households.
Economic Concerns and Inflation Trends
The BoC’s attention is now shifting from controlling inflation to addressing growing concerns about economic slack. While the Consumer Price Index (CPI) inflation rate has slowed to 1.6%, below the BoC's 2% target, signs of weakness in the labour market are emerging. Despite a slight drop in unemployment to 6.5%, the overall job market has cooled, raising concerns about economic growth.
Economists’ Predictions on Upcoming Rate Cuts
As the Bank of Canada (BoC) prepares for its tomorrow’s interest rate decision, several economists are weighing in on the possibility of substantial cuts.
50-Basis-Point (bps) Rate Cut for tomorrow October 23rd
Scotiabank: Inflation in Canada is slowing faster than anticipated. While Scotiabank initially expected gradual 25-bps cuts, they now foresee a 50-bps reduction at the October 23 meeting, with the BoC policy rate sitting at 3.0% by mid-2025.
RBC Economics: Policymakers are increasingly concerned that high interest rates are causing more economic damage than necessary, such as rising unemployment and a decline in GDP per capita. RBC believes a more neutral policy rate (between 2.25% and 3.25%) is needed, urging faster cuts.
BMO: With weaker growth and inflation, BMO expects a 50-bps cut but predicts a slower pace of cuts afterward, as the BoC approaches more neutral policy rates.
Desjardins: Desjardins forecasts a 50-bps rate cut in October, followed by another 25-bps cut in December. The bank also predicts further cuts through 2025, but if the labour market weakens further, the pace of cuts could accelerate.
CD Howe Institute: The institute’s members argue that Canada’s economy is operating below its full capacity, creating an output gap. They suggest the BoC may need to target an even lower overnight rate to stimulate demand and return inflation to 2%.
Back-to-Back “Jumbo” Rate Cuts
Oxford Economics: Given fading economic momentum and weakening inflation, Oxford Economics predicts two consecutive 50-bps cuts in October and December, followed by four smaller 25-bps cuts. This would lower the overnight rate to 2.25% by mid-2025.
National Bank: While a 50-bps rate reduction is anticipated, National Bank suggests that forward rate guidance will remain data-dependent. The bank expects the BoC to avoid explicitly signaling another 50-bps cut in December, focusing instead on economic conditions.
These projections reflect growing consensus that the BoC will act aggressively to lower rates, driven by a weakening labour market and inflation falling below the 2% target. However, the pace and scale of future cuts remain subject to economic data and market conditions
For more information on Interest Rates and Mortgage, please visit the link below: