Scotiabank Revises Forecast, Predicts Bank of Canada Rate Cuts in 2026 Amid Growing Trade Pressures
Scotiabank has updated its interest rate outlook, now projecting that the Bank of Canada (BoC) will deliver three rate cuts in 2026 as the global economy faces mounting pressure from escalating U.S. trade policies.
This marks a significant shift from Scotiabank’s earlier view that the BoC had reached its terminal rate and would hold steady at 2.75% throughout the forecast period.
In a newly released report, Scotiabank economists highlight a rapidly deteriorating growth outlook, largely driven by what they call a “dramatic escalation of America’s war on trade.” While Canada has so far avoided the steepest tariffs, weaker U.S. growth and softer commodity prices are already affecting the Canadian economy.
Economic risks are rising on both sides of the border. In the U.S., Scotiabank notes that tariffs—at their highest in a century—are already triggering a notable economic slowdown that’s expected to persist into next year.
Although tariffs on Canadian goods have remained largely unchanged since March, the broader fallout from slowing global trade is weighing heavily.
“We now forecast the Federal Reserve will maintain its policy rate at the current level through the rest of the year due to the inflationary effects of its tariff policy,” the report says. “The Bank of Canada is expected to hold rates at 2.75% for now, though that could change depending on how inflation and growth evolve.”
Scotiabank stops short of forecasting a full-blown recession—unlike firms such as Oxford Economics—but warns that economies will “flirt with recession” due to tariffs and mounting uncertainty.
For Canada, the bank now expects GDP growth to slow sharply to just 0.7% in 2026, with unemployment rising to 7.2% as economic momentum stalls.
BoC Cuts Expected, but Not Until 2026
Looking ahead, Scotiabank anticipates the Bank of Canada will begin cutting rates in 2026.
“We assume Governor Macklem will keep rates steady through 2025, but that outlook depends heavily on the evolution of the global trade conflict and the extent of U.S. economic weakness,” the economists said.
If economic conditions deteriorate more than expected, rate cuts could come sooner, they added.
Under its base case, Scotiabank projects the BoC will lower its policy rate by 75 basis points in 2026 to support a still-fragile recovery.
This puts Scotiabank’s forecast at odds with other major banks like BMO, TD, and CIBC, which expect rate cuts to resume later this year. National Bank and RBC anticipate two to three cuts in 2025 but project the BoC will hike rates again in 2026 as conditions improve.
