Introduction to Interest Rates in Canada
Canada’s largest banks are moving into 2026 with different expectations for where interest rates will land. The central bank is heading into a year where inflation risks, trade uncertainty, weak productivity, and slowing population growth play a big role. Economists from the Big Six banks shared their expectations with BNN Bloomberg.
Expectations for Interest Rates
The central bank held the rate steady at 2.25 per cent during the latest interest rate announcement on December 10, after cutting the rate four times in the last year. Among the six major economists interviewed, two expect rate hikes, one expects cuts, and the rest say Governor Tiff Macklem will sit tight through the entire year.
Who Expects a Cut?
BMO is expecting a rate cut below the neutral rate, either two per cent or lower, to 1.75 per cent. Earl Davis, head of fixed income and money markets at BMO Global Asset Management, says the biggest risk to his forecast is uncertainty around the Canada-United States-Mexico Agreement (CUSMA) or a price hike in oil prices. Davis believes that the Bank of Canada will add additional stimulus to the Canadian economy by having an overnight interest rate that is in the easing zone, outside of neutral.
Who Expects a Rate Hike?
Scotiabank’s Expectations
Scotiabank expects the Bank of Canada to raise its key interest rate by 50 basis points in the second half of 2026. This will bring the policy rate back to 2.75 percent, the midpoint of the neutral range, according to Jean-François Perrault, chief economist for Scotiabank. Perrault points to wage growth, weak productivity, and the recent depreciation of the Canadian dollar as signs of inflation pressure.
National Bank of Canada’s Expectations
National Bank of Canada also expects the key interest rate to rise by 50 basis points late next year. The bank had initially foresaw rate hikes in 2027 but changed its forecast after strong economic data. Ethan Currie, strategist with National Bank of Canada, expects Canadian bond yields to increase in anticipation of future monetary policy tightening.
Who Expects a Hold?
CIBC’s Expectations
CIBC’s view is that the Bank of Canada won’t move on interest rates in either direction, but "they ought to be lowering interest rates further," according to Avery Shenfeld, the bank’s chief economist. Shenfeld sees a window where the central bank could cut more aggressively without generating a lot of inflation.
RBC’s Expectations
Jason Daw, head of North American FX strategy at RBC Capital Markets, also has a hold as his base case, but sees more risk of hikes than cuts. Daw says slower population growth and lower immigration mean Canada’s trend growth rate is weaker than it used to be.
TD Bank’s Expectations
TD Bank expects the Bank of Canada to leave rates unchanged throughout 2026. The Bank has already reduced rates enough over the last two years to rein in inflation, according to Leslie Preston, senior economist for TD Bank. Preston said Canada is in a period of slow growth as the economy adjusts to the new trade reality with the U.S.
Conclusion
In conclusion, Canada’s largest banks have different expectations for interest rates in 2026. While some expect rate hikes, others expect cuts or a hold. The Bank of Canada’s decision will depend on various factors, including inflation risks, trade uncertainty, weak productivity, and slowing population growth. As the economy continues to evolve, it’s essential to keep an eye on these factors and how they may impact interest rates in the future.
