Big Five Banks weigh in on Bank of Canada's Wednesday rate decision

The Bank of Canada makes its next rate announcement on March 12, with US tariffs, reciprocal tariffs and a tumbling stock market set to affect its decision to hold, raise or cut its overnight rate. 

The chief economists at Canada’s five big banks are all calling for a cut, according to a survey by on-line real estate site, Storeys. 

In no particular order, here are the economists’ forecasts. 

Scotiabank’s Derek Holt says the Bank of Canada will act with “a neutral-hawkish bias.” 

“The Bank of Canada would hold if not for the imposition of tariffs, but even the tariff effect isn’t a slam-dunk for a cut or easing bias,” he said. “The language in the last communications combined with data since then bolstered the case for pausing after 200 basis points of rate cuts down to the present 3% overnight rate.”  

Holt believes the threat posed by tariffs could be diminishing. 

“It seems, however, that most sectors of the economy are likely to escape US tariffs if they can prove to be CUSMA compliant. Over 40% of trade is already CUSMA-compliant and the sense is that the majority of the rest could quickly become CUSMA-compliant.” 

Holt’s forecast: The rate will be lowered to 2.75% and held there until the end of the year. 

In a March 7 report, RBC economists Nathan Janzen and Claire Fan wrote, “We expect the Bank of Canada interest rate decision on Wednesday will be a very close call as our base case forecast assumes it will forego a rate cut for the first time since April 2024, but US trade risks could still easily tilt odds towards a seventh consecutive cut.”  

They believe if international trade wasn’t a risk, the Bank of Canada would hold its rate at 3%. 

“Inflation has remained around the central bank’s 2% target, but would be higher without the federal sales tax holiday. Q4 GDP growth surprised substantially on the upside,” they said. “There was some evidence of softening Canadian employment in trade sensitive sectors in February.” 

“But the unemployment rate is still below levels late last year, consistent with the view that the economy-wide production gap (the key driver of future inflation pressures in the BoC’s policy framework) had begun to narrow into 2025.” 

In the long run Janzen and Fan forecast the rate will be lowered to 2.25% by the third quarter of 2025 and held at that level until the end of the year. 

Last Friday, CIBC Economist Avery Shenfeld said “the trade war is still very much in play” and that “a one-month reprieve means little.”  

“Exporters rushed to get their March shipments across the border ahead of time, leaving less export demand for the coming few weeks,” he said. 

“Even if the 25% ‘fentanyl’ tariffs are dropped in April, and there’s been no guarantee of that, they’ll be replaced by ‘reciprocal tariffs’ that could still be quite elevated.”  

“The White House will be free to calculate Canada’s tariff and non-tariff barriers with the same degree of rigour that they applied in their assessment of Canada’s role in US fentanyl supply.” 

Shenfeld’s long-term forecast is the Bank of Canada’s rate will be at 2.25% by June and held until the end of the year. 

TD Bank Economist Marc Ercolao noted many US importers rushed their shipments of Canadian goods across the border and stockpiled them, in particular, consumer goods, automotive goods, industrial machinery and equipment, and energy products that would give Canada’s first-quarter GDP a short-lived boost. 

As such, economists with TD are predicting the Bank of Canada will cut its rate by .25% on Wednesday, with its long-term forecast being a 2.25% rate by the second quarter and holding until the end of the year. 

On March 4, The Bank of Montreal (BMO) called for quarter-point cuts at each of the Bank of Canada ’s next four meetings, including this week, which would bring the policy rate down to 2% by the July 30th meeting.  

BMO Economist Douglas Porter said at the time “the net risk is that we eventually go even lower, if the Bank is comfortable with the prevailing inflation backdrop later this year.” 

“The Bank of Canada’s rate cut in late January was partly portrayed as a risk management move compelled by the rising risk of US tariffs. With that risk now being realized, we reckon the Bank will lean against the expected significant economic slowdown and steeply escalating risk of recession along with associated disinflationary pressures.”  

“However, there will be a measure of caution in the policy easing, with inflationary pressures simultaneously prodded by retaliatory tariffs and Canadian dollar depreciation.” 

Porter’s long-term view is the Bank of Canada’s rate will be 2% by July and could be lowered further pending the inflation backdrop. 

The Bank of Canada’s announcement will be made at 8 am MT on Wednesday.