Why Experts Urge the Bank of Canada to Hold Off on Rate Cuts
So here’s what’s going on right now with the Bank of Canada and its key interest rate—something that affects basically every Canadian, whether you're borrowing for a mortgage, running a business, or just managing your day-to-day expenses.
There’s been growing speculation about whether the Bank of Canada will lower its policy rate again, especially as the economy faces pressure from the ongoing trade war triggered by the United States. But interestingly, many experts are saying: not so fast.
Institutions like RBC—yes, the Royal Bank of Canada—are actually urging the Bank of Canada to hold the line and not lower its rate in the short term. Frances Donald, who’s RBC’s chief economist, admits there are economic weak spots—like a sluggish real estate market and some sectors being hit hard by the trade dispute. But she raises a good point: would a rate cut really solve those issues?
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See, when the central bank lowers its rate, that affects all parts of the economy, not just the ones that are struggling. Whether you're in Windsor, where unemployment is over 11%, or in Victoria, where it’s under 4%, a rate cut would impact both areas equally—even though their needs are clearly very different. That’s why Donald and others think a broad rate cut might actually be the wrong move. Instead, they suggest that direct, targeted support—like government aid to vulnerable industries and municipalities—would be much more effective.
Now, back in March, the Bank of Canada did cut its rate by a quarter point, bringing it to 2.75%. But since then, it’s held steady, even as new employment data came out stronger than expected and inflation remained relatively stable—hovering around 3%.
Some economists still believe we’ll see one or two more cuts before the year ends, especially if inflation keeps cooling off. On the flip side, Oxford Economics sees things differently. They think Canada is already in a mild recession and that inflation could climb again by mid-2026—thanks to tariffs and supply chain issues caused by the trade war. So in their view, the Bank might actually need to keep rates where they are to prevent inflation from spiking again.
Meanwhile, BMO’s chief economist, Doug Porter, thinks there could be up to three more rate cuts by early 2026—but he also acknowledges that financial markets themselves are cautiously hopeful for just one more cut soon.
One more factor? The federal government is expected to boost military spending and infrastructure investment in the coming months. That might take some of the pressure off the Bank of Canada to act.
So, while the situation is still unfolding, there’s a clear message from several experts: caution is key. Cutting rates might seem helpful, but in this environment, it could end up doing more harm than good.
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