Avery Shenfeld, Chief Economist at CIBC, says he doesn’t expect the Bank of Canada to cut its benchmark interest rate this Wednesday — but if it does, he says it would be a “pleasant surprise.”
“There’s always a chance they’ll surprise us,” Shenfeld said. “But I’m not holding out much hope.”
Most economists agree: they believe the Bank will keep the current policy rate steady at 2.75% for the third time in a row.
As of Friday afternoon, financial markets were giving just a 7% chance of a quarter-point rate cut this week, according to data from LSEG.
Why the hesitation? Stubborn inflation and surprisingly strong job numbers have reduced the urgency for further rate cuts since the last decision in June. For example, Canada unexpectedly added 83,000 jobs in June, pushing the unemployment rate down for the first time since January.
Shortly after, Statistics Canada reported annual inflation rose slightly to 1.9%, while core inflation — the kind the Bank of Canada watches closely — remained stuck near 3%.
Because of this, RBC economists Claire Fan and Abbey Xu wrote that they do not expect the Bank to cut rates again. They say inflation remains too persistent, the economy is slowing but still stable, and more government spending could reduce the need for monetary easing.
But Shenfeld is still calling for lower interest rates — not because of what’s happened, but because of what he sees coming.
He notes that despite June’s jobs boost, the labour market remains soft, with unemployment sitting at 6.9%. He also believes Canada’s ongoing tariff dispute with the U.S. likely caused the economy to shrink in the second quarter.
According to Shenfeld, the economy is showing signs of slowing down, which could help ease inflation in the months ahead.
Even the Bank of Canada’s own survey shows that many companies are choosing to absorb tariff-related costs instead of raising prices — a signal that these tariffs may not lead to long-term inflation.
Once the Bank is confident that these inflation risks are temporary, Shenfeld believes they’ll be more comfortable cutting rates again.
“I think they’ve seen enough to rule out the worst-case trade scenario,” he said.
Bank of Canada Governor Tiff Macklem has said the central bank is being more cautious than usual due to the trade war. Earlier this year, instead of a full economic forecast, the Bank presented two possible scenarios for how tariffs might affect the economy.
Desjardins Chief Economist Jimmy Jean believes the Bank may now feel confident enough to return to formal forecasts in this week’s Monetary Policy Report.
“There’s still uncertainty,” Jean said. “But at some point, you have to make a call — with proper disclaimers.”
That uncertainty is growing as U.S. President Donald Trump threatens new tariffs of up to 35% on Canadian imports starting Friday if no trade deal is reached. However, goods covered under the CUSMA agreement are likely to be exempt.
Some experts, including those at RBC, believe the Bank of Canada may be finished with rate cuts — leaving the job of supporting the economy through the trade tensions to federal and provincial governments.
