Click here to join our mailing list to receive the latest news and updates as they happen. Unsubscribe any time.
Bank of Canada rate projections

Bank of Canada decision: Rate hold expected, but debate over future hikes persists

Weaker-than-expected GDP data last week likely sealed the deal for a rate hold tomorrow by the Bank of Canada. But not all economists are convinced that this marks the end of the current rate-hike cycle.

Statistics Canada reported on Friday that second-quarter economic growth contracted by 0.2% compared to Q1, well down from the Bank of Canada’s 1.5% forecast for the quarter.

The surprising slowdown in economic growth, together with rising unemployment and easing inflation, firmed up the consensus expectation for a rate hold at tomorrow’s monetary policy meeting.

It also led to some suggesting we’re now reached the end of the current rate-hike cycle.

“The broad softening in the domestic economy will almost certainly move the BoC to the sidelines at next week’s rate decision after back-to-back hikes,” wrote BMO chief economist Douglas Porter. “Between the half-point rise in the unemployment rate, the marked slowing in GDP, and some cooling in core inflation, it now looks like rate hikes are over and done.”

But not everyone is convinced.

“I think [the Bank of Canada] should have comfort to deliver another rate hike at this point, but they will probably seek the cover of the latest GDP figures and defer a fuller forecast assessment to the October meeting by which point they will also have a lot more data,” wrote Scotiabank’s Derek Holt.

“Nevertheless, I’m unsure that rate hikes are done,” he continued. “The Governor has been clear that a protracted period of actual GDP growth under-performing potential GDP growth will be required in order to open up disinflationary slack in the economy. In plain language, he realizes he has to break a few things in order to achieve his inflation goals. I don’t think he has the confidence to this point to say that they are clearly on such a path.”

What the forecasters are saying…

On Inflation:

  • National Bank: “Unfortunately, it’s on CPI inflation where policymakers will and should still feel uneasy. The re-acceleration in July will continue in August (due mostly to gas prices and base effects) and could push headline inflation close to 4%. The BoC doesn’t expect a particularly benign inflation environment in the near term, noting in July that price growth should “hover around 3% for the next year.” Governing Council will therefore tolerate some near-term upside pressures, particularly if it comes with weakness elsewhere in the economy. However, a stabilization above 3% would be problematic and could mean additional tightening.”

On future rate hikes:

  • Desjardins: “There’s been sufficient weakness in the economy to warrant a pause on Wednesday, even with inflation data that will leave policymakers feeling uneasy. We expect that July’s hike will prove to be the last of this tightening cycle and recent data reinforce that view.”
  • TD Economics: “We think [the economic slowdown] will continue, justifying our call for the BoC to remain on the sidelines for the rest of this year.” (Source)
  • Scotiabank: “The Governor needs to be mindful that market conditions have eased of late and careful not to drive a further easing that could replay the rally in 5-year GoC bonds earlier this year that set up cheaper mortgages and drove a Spring housing boom.” (Source)


  • TD Economics: “While federal government transfers in July may result in a short-term boost in the third quarter, we believe Canada has entered a stage of below trend economic growth. This should continue through the rest of this year, as the impact of high interest rates work through the economy to prevent another acceleration in demand.” 

The latest Bank of Canada rate forecasts

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate:
Year-end ’23
Target Rate:
Year-end ’24
Target Rate:
Year-end ’25
5-Year BoC Bond Yield:
Year-end ’23
5-Year BoC Bond Yield:
Year-end ’24
BMO 5.00% 4.25% NA 3.70% (+5bps)
3.10% (-5bps)
CIBC 5.25% 3.50% NA NA NA
NBC 5.00% 4.00% NA 3.55% 3.05% (-5bps)
RBC 5.00% 4.00% NA 3.50% 3.00%
Scotia 5.00% 3.75% NA 3.65% 3.60%
TD 5.00% 3.50% NA 3.55% 2.70%