Posthaste: Why these economists think the Bank of Canada will be 'one and done' in 2025
The Bank of Canada is expected to cut another quarter point off its interest rate tomorrow, but what if it stops there?
That’s the prediction of Bank of America economists who think Canada’s central bank will cut 25 basis points on Jan. 29 and then hold its key rate at 3 per cent.
“We expect the forward guidance to signal a pause as the BoC waits to see how both domestic activity and U.S. trade policy play out,” said the economists led by Carlos Capistran.
“With inflation mostly under control and under our expectation that activity will keep improving we see 3 per cent as the terminal rate.”
Their rate prediction is higher than most Canadian economists and the markets that are betting on two full cuts from the Bank of Canada this year.
They reason that though there were still signs of weakness in the fourth quarter, the economy is recovering, as shown by December’s strong jobs report.
Inflation in Canada is mostly under control, but as the economy recovers core measures which remain above target are unlikely to fall more, they said.
In fact, one risk they list to their forecast is that the Bank of Canada could hold on Wednesday because of concerns over core inflation.
Bank of America’s U.S. economists also expect the Federal Reserve to remain on hold this year, which could limit what the Bank of Canada can do.
A big wild card is the threat of President Donald Trump’s tariffs, which could throw Canada into recession if imposed and force the Bank of Canada to cut rates further.
But Bank of America’s base case assumes there will be no tariffs, just “a continuous looming threat of tariffs until the USMCA trade agreement is reviewed.”
Whether they are right remains to be seen. This week Trump ramped up his threats, pledging
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