
Here's why the Bank of Canada could be done cutting interest rates for now
After a quarter-point cut in March, the central bank held its benchmark interest rate steady at 2.75 per cent in April and June.
With last month's jobs figures showing a surprise gain and core inflation levels holding steady at around three per cent, economists now broadly expect the central bank will continue its holding pattern at its next decision on July 30.
The central bank lowers its policy rate when it wants to encourage spending and boost the economy but keeps borrowing costs elevated when there are concerns inflation could pick up steam.
Most economists expect the Bank of Canada will deliver at least one or two more quarter-point cuts in the months ahead.
Story continues below advertisement
Lower rates would help shore up the economy in the trade war, the argument goes.
RBC is among a small group making the case for no more interest rate cuts from the Bank of Canada for the time being.
Frances Donald, RBC's chief economist, said the central bank could opt to cut again amid 'pockets' of weakness in the economy — a soft housing market and a sharp slowdown in tariff-struck sectors like manufacturing, to name a few.
'On the flip side,' she said in an interview, 'it's worth considering, would Bank of Canada rate cuts actually help what's hurting the Canadian economy?'
The policy rate is a broad tool that affects every Canadian — and every market — regardless of their need for support, Donald noted.
That means that tariff-sensitive Windsor, Ont., where the unemployment rate now tops 11 per cent, would see the same stimulus from a rate cut as Victoria, B.C., where the jobless rate currently sits at just 3.9 per cent.
Get breaking National news
For news impacting Canada and around the world, sign up for breaking news alerts delivered directly to you when they happen. Sign up for breaking National newsletter Sign Up
By providing your email address, you have read and agree to Global News' Terms and Conditions and Privacy Policy
'Rate cuts would probably be inappropriate in an economy like that,' Donald said.
Instead, RBC argues that markets like Windsor need the precision of fiscal policy support from the government.
The Bank of Canada has already delivered 2.25 percentage points of interest rate cuts over the past year, and that support is only now starting to filter into the economy, Donald said.
Story continues below advertisement
The central bank can now hand the baton to the federal government without having to provide much more support for the economy, she said, unless signs of a broader downturn start to materialize.
Donald said RBC has a more optimistic view of the economy than some other forecasters, expecting growth to pick up through the rest of the year thanks to resilient consumer spending and an expected rebound in business confidence.
But Oxford Economics, which expects Canada is already in a recession that will persist through the rest of the year, also expects no further interest rate cuts from the central bank.
The firm said in an updated outlook this week that while it expects job losses to pick up steam in the months ahead, it also sees inflation rising to three per cent by mid-2026 thanks to tariffs and related supply-chain strain.
The Bank of Canada will want to lean against any potential rise in prices and will keep its policy rate on hold even as the trade war stymies growth, Oxford Economics argued.
Donald said that after inflation surged over the pandemic, consumers are likely feeling 'scarred' as new price pressures bubble up around them.
'Canadians have been through a very serious affordability crisis and this is a Bank of Canada that's likely going to lean on the side of wanting to prevent a second round,' she said.
Story continues below advertisement
BMO, meanwhile, has three more interest rate cuts in its forecast currently, with the final coming in March of next year.
2:00
Business Matters: Young adults and low-income households more likely to report financial stress
But BMO chief economist Doug Porter acknowledged the arguments are growing for fewer, if any, cuts.
'If you look at what the financial markets are expecting, and they're often a very good judge, at this point they're really only looking for one more cut,' he said in an interview after Tuesday's inflation release.
Porter said the federal government is expected to rapidly ramp up spending, particularly on defence and infrastructure, in the coming months, taking some of the pressure off the Bank of Canada to cut rates.
Stephen Brown, deputy chief North America economist at Capital Economics, believes it's not reasonable to expect the central bank is done cutting with the unemployment rate holding near seven per cent and the economy's output well below potential.
Story continues below advertisement
'I think it's quite unlikely that we're in a position where the economy doesn't need any cuts at all,' he said.
At 2.75 per cent, the Bank of Canada's benchmark interest rate is at the middle of its so-called 'neutral range,' where monetary policy is neither boosting nor stifling economic growth.
Brown said he expects the policy rate will likely drop to 2.25 per cent before the central bank's easing cycle is done, giving the economy some tailwinds through the trade uncertainty.
Donald believes the Bank of Canada is well positioned at the middle of its neutral range — able to pivot lower with a couple of interest rate cuts as needed or keep rates elevated if inflation proves stubborn in the months ahead.
She said she doesn't expect interest rate hikes will be in the cards anytime soon, but argues the Bank of Canada maintains overall flexibility by keeping its policy rate on hold until the data tells it which way to move.
'They could choose to stay at this level for the next one to two years waiting for the next shock, which could go in one direction or the next.'
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Global News
4 hours ago
- Global News
Trump begins EU trade discussions at golf resort meeting in Scotland
President Donald Trump headed into high-stakes talks Sunday with a top European official demanding fairer trade with the 27-member European Union and threatening steep tariffs to achieve that while insisting the United States will not go below 15 per cent import taxes. Make-or-break talks could head off punishing U.S. tariffs and promised retaliation from Europe that could send shock waves through economies around the globe. European Commission chief Ursula von der Leyen, seated next to Trump at his golf resort on the Scottish coast, called for a rebalancing of bilateral trade worth billions of dollars between the vital partners. Speaking to reporters before their private meeting, she and Trump put the chances of reaching an agreement at 50-50 as Friday's White House deadline neared. 'This is bigger than any other deal,' Trump said. He suggested they could cut a deal in just a short time. Story continues below advertisement Trump called von der Leyen 'highly respected' and meeting with her at his Turnberry golf course, where he played in the morning, was an honor. 'The main sticking point,' the Republican president said, was 'fairness.' View image in full screen President Donald Trump meets European Commission President Ursula von der Leyen at the Trump Turnberry golf course in Turnberry, Scotland Sunday, July 27, 2025. (AP Photo/Jacquelyn Martin). For months, Trump has threatened most of the world with large tariffs in hopes of shrinking major U.S. trade deficits with many key trading partners, including the EU. Trump has hinted that any deal with the EU would have to 'buy down' the currently scheduled tariff rate of 30 per cent. During the remarks before the media Sunday, he pointed to a recent U.S. agreement with Japan that set tariff rates for many goods at 15 per cent and suggested the EU could agree to something similar. Get daily National news Get the day's top news, political, economic, and current affairs headlines, delivered to your inbox once a day. Sign up for daily National newsletter Sign Up By providing your email address, you have read and agree to Global News' Terms and Conditions and Privacy Policy Asked if he would be willing to accept tariff rates lower than that, Trump said 'no.' Story continues below advertisement Their meeting came after Trump played golfed for the second straight day at his Turnberry course on the southwest coast of Scotland, this time with a group that included sons Eric and Donald Jr. The president's five-day visit to Scotland is built around golf and promoting properties bearing his name. View image in full screen US President Donald Trump plays golf at his Trump Turnberry golf course in South Ayrshire, during his five-day private trip to the country. Picture date: Sunday July 27, 2025. (PA Photo: Jane Barlow/PA Wire). A small group of demonstrators at the course waved American flags and raised a sign criticizing British Prime Minister Keir Starmer, who plans his own Turnberry meeting with Trump on Monday. Other voices could be heard cheering and chanting 'Trump! Trump!' as he played nearby. On Tuesday, Trump will be in Aberdeen, in northeastern Scotland, where his family has another golf course and is opening a third next month. The president and his sons plan to help cut the ribbon on the new course. Joining von der Leyen were Maros Sefcovic, the EU's chief trade negotiator; Björn Seibert, the head of von der Leyen's Cabinet; Sabine Weyand, the commission's directorate-general for trade, and Tomas Baert, head of the trade and agriculture at the EU's delegation to the U.S. Story continues below advertisement 1:06 Trump visits Scotland to open new golf resort, sparking mixed local response The U.S. and EU seemed close to a deal earlier this month, but Trump instead threatened the 30 per cent tariff rate. The deadline for the Trump administration to begin imposing tariffs has shifted in recent weeks but is now firm, the administration insists. 'No extensions, no more grace periods. Aug. 1, the tariffs are set, they'll go into place, Customs will start collecting the money and off we go,' U.S. Commerce Secretary Howard Lutnick told 'Fox News Sunday.' He added, however, that even after that 'people can still talk to President Trump. I mean, he's always willing to listen.' Lutnick said the EU 'needs to make a deal and wants to make a deal and they are flying to Scotland to make a deal with President Trump. The question is do they offer President Trump a good enough deal that is worth it for him to step off of the 30 per cent tariffs that he set.' Story continues below advertisement View image in full screen President Donald Trump meets European Commission President Ursula von der Leyen at the Trump Turnberry golf course in Turnberry, Scotland Sunday, July 27, 2025. (AP Photo/Jacquelyn Martin). Without an agreement, the EU says it is prepared to retaliate with tariffs on hundreds of American products, ranging from beef and auto parts to beer and Boeing airplanes. If Trump eventually makes good on his threat of tariffs against Europe, it could make everything from French cheese and Italian leather goods to German electronics and Spanish pharmaceuticals more expensive in the United States. The U.S. and Britain, meanwhile, announced a trade framework in May and a larger agreement last month during the Group of Seven meeting in Canada. Trump says that deal is concluded and that he and Starmer will discuss other matters, though the White House has suggested it still needs some polishing.


Vancouver Sun
5 hours ago
- Vancouver Sun
Trump's tariff threats against Canada face legal hurdles ahead of August deadline
Donald Trump's plan to realign global trade faces its latest legal barrier this week in a federal appeals court — and Canada is bracing for the U.S. president to follow through on his threat to impose higher tariffs. While Trump set an Aug. 1 deadline for countries to make trade deals with the United States, the president's ultimatum has so far resulted in only a handful of frameworks for trade agreements. Deals have been announced for Japan, Vietnam, Indonesia, the Philippines and the United Kingdom — but Trump indicated last week that an agreement with Canada is far from complete. Start your day with a roundup of B.C.-focused news and opinion. By signing up you consent to receive the above newsletter from Postmedia Network Inc. A welcome email is on its way. If you don't see it, please check your junk folder. The next issue of Sunrise will soon be in your inbox. Please try again Interested in more newsletters? Browse here. 'We don't have a deal with Canada, we haven't been focused on it,' Trump told reporters Friday. Trump sent a letter to Prime Minister Mark Carney threatening to impose 35 per cent tariffs if Canada doesn't make a trade deal by the deadline. The White House has said those duties would not apply to goods compliant with the Canada-U.S.-Mexico Agreement on trade. Canadian officials have also downplayed expectations of a new economic and security agreement materializing by Friday. 'We'll use all the time that's necessary,' Carney said last week. Countries around the world will also be watching as Trump's use of a national security statute to hit nations with tariffs faces scrutiny in the United States Court of Appeals for the Federal Circuit. The U.S. Court of International Trade ruled in May that Trump does not have the authority to wield tariffs on nearly every country through the use of the International Economic Emergency Powers Act of 1977. The act, usually referred to by the acronym IEEPA, gives the U.S. president authority to control economic transactions after declaring an emergency. No previous president had ever used it for tariffs and the U.S. Constitution gives power over taxes and tariffs to Congress. The Trump administration quickly appealed the lower court's ruling on the so-called 'Liberation Day' and fentanyl-related tariffs and arguments are set to be heard in the appeal court on Thursday. The hearing combines two different cases that were pushing against Trump's tariffs. One involves five American small businesses arguing specifically against Trump's worldwide tariffs, and the other came from 12 states pushing back on both the 'Liberation Day' duties and the fentanyl-related tariffs George Mason University law professor Ilya Somin called Trump's tariff actions a 'massive power grab.' Somin, along with the Liberty Justice Center, is representing the American small businesses. 'We are hopeful — we can't know for sure obviously — we are hopeful that we will continue to prevail in court,' Somin said. Somin said they are arguing that IEEPA does not 'give the president the power to impose any tariff he wants, on any nation, for any reason, for as long as he wants, whenever he feels like it.' He added that 'the law also says there must be an emergency and an unusual and extraordinary threat to American security or the economy' — and neither the flow of fentanyl from Canada nor a trade deficit meet that definition. U.S. government data shows a minuscule volume of fentanyl is seized at the northern border. The White House has said the Trump administration is legally using powers granted to the executive branch by the Constitution and Congress to address America's 'national emergencies of persistent goods trade deficits and drug trafficking.' There have been 18 amicus briefs — a legal submission from a group that's not party to the action — filed in support of the small businesses and states pushing against Trump's tariffs. Two were filed in support of the Trump administration's actions. Brent Skorup, a legal fellow at the Washington-based Cato Institute, said the Trump administration is taking a vague statute and claiming powers never deployed by a president before. The Cato Institute submitted a brief that argued 'the Constitution specifies that Congress has the power to set tariffs and duties.' Skorup said there are serious issues with the Trump administration's interpretation of IEEPA. 'We don't want power consolidated into a single king or president,' he said. It's expected the appeals court will expedite its ruling. Even if it rules against the duties, however, they may not be immediately lifted. White House Press Secretary Karoline Leavitt has said the Supreme Court should 'put an end to this.' There are at least eight lawsuits challenging the tariffs. Canada is also being hit with tariffs on steel, aluminum and automobiles. Trump used different powers under the Trade Expansion Act of 1962 to enact those duties. Our website is the place for the latest breaking news, exclusive scoops, longreads and provocative commentary. Please bookmark and sign up for our daily newsletter, Posted, here .


Global News
7 hours ago
- Global News
As Trump's trade deal deadline approaches, his tariffs face legal pushback in court
Donald Trump's plan to realign global trade faces its latest legal barrier this week in a federal appeals court — and Canada is bracing for the U.S. president to follow through on his threat to impose higher tariffs. While Trump set an Aug. 1 deadline for countries to make trade deals with the United States, the president's ultimatum has so far resulted in only a handful of frameworks for trade agreements. Deals have been announced for Japan, Vietnam, Indonesia, the Philippines and the United Kingdom — but Trump indicated last week that an agreement with Canada is far from complete. 'We don't have a deal with Canada, we haven't been focused on it,' Trump told reporters Friday. Trump sent a letter to Prime Minister Mark Carney threatening to impose 35 per cent tariffs if Canada doesn't make a trade deal by the deadline. The White House has said those duties would not apply to goods compliant with the Canada-U.S.-Mexico Agreement on trade. Story continues below advertisement Canadian officials have also downplayed expectations of a new economic and security agreement materializing by Friday. 'We'll use all the time that's necessary,' Carney said last week. Countries around the world will also be watching as Trump's use of a national security statute to hit nations with tariffs faces scrutiny in the United States Court of Appeals for the Federal Circuit. The U.S. Court of International Trade ruled in May that Trump does not have the authority to wield tariffs on nearly every country through the use of the International Economic Emergency Powers Act of 1977. Get daily National news Get the day's top news, political, economic, and current affairs headlines, delivered to your inbox once a day. Sign up for daily National newsletter Sign Up By providing your email address, you have read and agree to Global News' Terms and Conditions and Privacy Policy The act, usually referred to by the acronym IEEPA, gives the U.S. president authority to control economic transactions after declaring an emergency. No previous president had ever used it for tariffs and the U.S. Constitution gives power over taxes and tariffs to Congress. The Trump administration quickly appealed the lower court's ruling on the so-called 'Liberation Day' and fentanyl-related tariffs and arguments are set to be heard in the appeal court on Thursday. The hearing combines two different cases that were pushing against Trump's tariffs. One involves five American small businesses arguing specifically against Trump's worldwide tariffs, and the other came from 12 states pushing back on both the 'Liberation Day' duties and the fentanyl-related tariffs. Story continues below advertisement George Mason University law professor Ilya Somin called Trump's tariff actions a 'massive power grab.' Somin, along with the Liberty Justice Center, is representing the American small businesses. 'We are hopeful — we can't know for sure obviously — we are hopeful that we will continue to prevail in court,' Somin said. Somin said they are arguing that IEEPA does not 'give the president the power to impose any tariff he wants, on any nation, for any reason, for as long as he wants, whenever he feels like it.' He added that 'the law also says there must be an emergency and an unusual and extraordinary threat to American security or the economy' — and neither the flow of fentanyl from Canada nor a trade deficit meet that definition. U.S. government data shows a minuscule volume of fentanyl is seized at the northern border. The White House has said the Trump administration is legally using powers granted to the executive branch by the Constitution and Congress to address America's 'national emergencies of persistent goods trade deficits and drug trafficking.' There have been 18 amicus briefs — a legal submission from a group that's not party to the action — filed in support of the small businesses and states pushing against Trump's tariffs. Two were filed in support of the Trump administration's actions. Story continues below advertisement Brent Skorup, a legal fellow at the Washington-based Cato Institute, said the Trump administration is taking a vague statute and claiming powers never deployed by a president before. The Cato Institute submitted a brief that argued 'the Constitution specifies that Congress has the power to set tariffs and duties.' Skorup said there are serious issues with the Trump administration's interpretation of IEEPA. 'We don't want power consolidated into a single king or president,' he said. It's expected the appeals court will expedite its ruling. Even if it rules against the duties, however, they may not be immediately lifted. White House Press Secretary Karoline Leavitt has said the Supreme Court should 'put an end to this.' There are at least eight lawsuits challenging the tariffs. Canada is also being hit with tariffs on steel, aluminum and automobiles. Trump used different powers under the Trade Expansion Act of 1962 to enact those duties.