Economists now see a clear trajectory for the Bank of Canada, with inflation nearing its target and the economy appearing poised for a soft landing. According to a recent Bloomberg survey, the central bank is expected to implement a series of quarter-point rate cuts over the next year, reflecting a cautious approach to easing monetary policy.
The survey, which gathered responses from 18 analysts, suggests that the Bank of Canada is unlikely to pursue aggressive rate cuts. None of the respondents anticipate a 50-basis-point reduction at any upcoming meeting. Instead, the majority predict a steady sequence of five 25-basis-point cuts, beginning with next Wednesday’s decision, ultimately bringing the benchmark overnight rate down to 3.25% by April before pausing further reductions. This follows two previous cuts that have already lowered the policy rate from its peak of 5%.
This measured approach aligns with the broader optimism among forecasters about the gradual normalization of monetary policy. Such a strategy is seen as consistent with a soft landing for Canada’s economy, where inflation is expected to return to the Bank of Canada’s 2% target between the second and fourth quarters of 2025. Additionally, most economists do not foresee significant job losses, with only 38% expecting a single month of net job losses exceeding 30,000 in the next six months.
The survey indicates that the Bank of Canada is unlikely to lower rates to pre-pandemic levels. The median forecast suggests the overnight rate will bottom out at 3%, with more than half of the economists expecting rate hikes to resume in the latter half of 2026.
However, not all economists are aligned in their predictions. For instance, Citigroup’s economists, although not part of this Bloomberg survey, recently forecasted a 50-basis-point cut in October, indicating some believe the economy is weaker than others estimate.
The survey also reflects consensus on the Bank of Canada’s quantitative tightening strategy, with nearly three-quarters of respondents expecting the central bank to continue reducing its balance sheet until the first half of 2025. This matches the bank’s projections for ending quantitative tightening.
Economists remain divided on certain technical aspects of the Bank’s monetary policy. For example, opinions vary on the appropriate level of settlement balances in Canada’s high-value payment system, Lynx, and the reasons behind the recent detachment of the Canadian Overnight Repo Rate Average (Corra) from the Bank of Canada’s target. While half of the analysts agree with the central bank’s research that this divergence is due to the move to next-day settlement in debt markets, others attribute it to factors like declining settlement balances, regulatory constraints, and the impact of the Federal Reserve’s quantitative tightening.
Despite these debates, confidence in the Bank of Canada’s credibility remains strong. Over 90% of surveyed economists believe that a temporary undershoot of the 2% inflation target would not harm the bank’s reputation. However, nearly two-thirds expressed concerns about the lack of clarity from Prime Minister Justin Trudeau’s government regarding plans to manage Canada’s non-permanent resident population, which could affect the accuracy of the central bank’s growth estimates.
This Bloomberg survey was conducted between August 23 and August 28, and its findings coincide with Statistics Canada’s report that GDP rose at an annualized rate of 2.1% in the second quarter, surpassing the median forecast of 1.8%.
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