Scotiabank joins chorus expecting a BoC cut as economy staggers under Trump effect
Scotiabank Senior Vice-President & Chief Economist Jean-François Perrault.
The Bank of Canada is likely to cut interest rates at its meeting on Wednesday as weakening growth outweighs still-elevated inflation, according to Scotiabank.
“We are inclined to think of these cuts as insurance,” Scotiabank Senior Vice-President & Chief Economist Jean-François Perrault said in a report, adding he expects the BoC to lower rates again in October.
Scotiabank said the Canadian economy is showing signs of strain, with over 100,000 jobs lost in the past two months and GDP likely to rise just 0.7% in the third quarter. “The possibility of a technical recession (two quarters of falling GDP) cannot be excluded,” the report says.
At the same time, core inflation remains near 3% in both Canada and the U.S., well above target. “The growth outlook would point to lower interest rates while the inflation outcomes suggest otherwise,” Perrault wrote, calling this a “tension” that central banks are struggling to balance.
Warns interest rate relief could be short-lived
He predicts the rate cuts delivered by the BoC this year will be reversed in 2026. “We believe inflation will prove to be more persistent than currently believed by the Bank of Canada,” Perrault wrote.
Scotiabank also expects the U.S. Federal Reserve to start cutting rates, projecting six consecutive 25-basis-point reductions despite lingering inflation.
The report said “worries about the tariffs have impacted spending decisions by firms and households in Canada,” with evidence that “the drop in GDP in Q2 in sectors most impacted by tariffs suggest that the impact of trade policies hit earlier than expected.”
While sentiment has recently improved — helped by resurgent home sales and modest gains from last year’s interest rate cuts — job losses are piling up. “There is no denying however that the employment numbers of the last two months have been concerning,” Perrault wrote.
With growth faltering and job losses mounting, Scotiabank sees central banks moving decisively to shield their economies. But easing monetary policy comes with a delicate trade-off: while rate cuts could support growth and employment, persistent inflation remains a looming threat. Policymakers face a high-stakes balancing act, and the decisions in the coming weeks could set the tone for North America’s economic trajectory well into 2026.
