Canadian banks forecast interest rates to hold steady through 2025

Analysts at Scotiabank and RBC expect the Canadian regulator to keep its key rate at 2.75% till the end of 2025. According to experts, this decision would maintain a "neutral stance" on monetary policy, neither stimulating nor restricting economic growth.

The extended pause will allow Canada to navigate the uncertainties stemming from US trade tariffs under Donald Trump while evaluating the inflationary pressures on consumers. Market expectations for rate cuts have also diminished. Traders had fully priced in a reduction in 2025, but the odds have now dropped to just 50%, as Bloomberg reported.

Despite the country’s exposure to US trade tensions, the economy showed resilience in June with 83,000 jobs being added. Concurrently, the unemployment rate, standing at 6.9%, persists at a modest premium above the levels recorded in January. 

RBC economists note that stronger-than-expected GDP growth and long-lasting inflation make it less probable that interest rates will be lowered in the near future.