Scotia Bank Forecasts Bank of Canada Rate Cuts in 2026 Amid Global Trade Tensions
Slower Growth Ahead Spurs Shift in Outlook
Scotiabank has revised its long-standing interest rate forecast and now predicts that the Bank of Canada will make three rate cuts in 2026. This change in response to increasing global economic uncertainty, particularly due to aggressive U.S. trade policies that are dampening growth prospects across North America.
While Scotiabank has previously assumed the BoC would hold its key rate at 2.75% through its forecast period, that stance has now changed. The banks economists not foresee Canada’s economy growing just 0.7% in 2026, with unemployment rising to 7.2%.
Tariffs and Trade Tensions at the Core
The revised interest rate forecast is driven by what Scotiabank calls a “dramatic escalation of America’s war on trade.” Though Canada has mostly avoided direct tariff hikes, the spillover effects from softer U.S. growth and falling commodity prices are already evident.
Scotiabank warns the 100-year high tariffs in the U.S. are creating a “material slowdown” that’s expected to persist. This raises the likelihood that both Canadian and U.S. economies will flirt with recession territory.
Interest Rate Forecast – Rate-Cuts Coming – But Not Yet
Unlike other major banks including BMO, TD and CIBC, which expect rate cuts this year, Scotiabank believes the Bank of Canada will hold rates steady through 2025 and only begin easing in 2026. Their base case sees a total of 75 basis points in cuts next year to help support a fragile recovery. It is also important to note that National Bank and RBC expect two to three quarter-point rate cuts in 2025, but expect the Bank of Canada to hike once or twice in 2026 as economic conditions improve.
Inflation is Still a Key Challenge
Despite the pressure to lower rates, inflation remains a balancing act. Scotiabank expects inflation to ease gradually, from 2.3% to 2.1% in 2026, assuming tariff-driven price increases don’t spiral.
How Client First Mortgage Solutions Can Help
At Client First Mortgage Solutions, we understand that shifting interest rate forecast and global trade tensions can create uncertainty when it comes to your mortgage plans. Whether you are renewing, refinancing, or exploring your options as a homeowner, our experienced team is here to guide you with personalized advice. We will help you assess how upcoming Bank of Canada rate cuts could affect your mortgage strategy and ensure you are in the best possible position – no matter what the economy brings. Let us help you make confident, informed decisions in today’s changing market. Contact us today!
Original Article – Canadian Mortgage Trends – Steve Huebl – April 29, 2025
