By Erik Hertzberg
(Bloomberg) — Two of Canada’s largest lenders have changed their forecasts and now see the Bank of Canada cutting borrowing costs later this month after a worse-than-expected jobs report.
Bank of Nova Scotia and the Bank of Montreal say they expect a quarter percentage-point cut from the central bank at its next decision on Sept. 17. That would bring the policy rate to 2.5%, which is the consensus expectation of most of the country’s biggest lenders. Economists at Royal Bank of Canada still expect officials to hold borrowing costs steady.
The change in calls happened after a Statistics Canada report showed the country shed more than 106,000 jobs in July and August, and the unemployment rate jumped to 7.1%, up 40 basis points from a year ago.
The looseness of the labour market “will ultimately sap underlying price pressures, and rates are clearly not low enough yet to spur the housing market,” said Doug Porter, chief economist at the Bank of Montreal.
“It’s true that monetary policy can’t fix the trade war, but it can provide important support to the other parts of the economy amid the deep and ongoing uncertainty,” he said.
Canadian bonds rallied across the curve after the data was released, coinciding with a weak U.S. jobs report. Traders in overnight swaps upped bets on a rate cut north of the border, putting the odds as high as 90%.
Bank of Canada Governor Tiff Macklem has held borrowing costs steady for the past three meetings, but policymakers have kept the door open to further monetary easing should the economy continue to weaken and price pressures be contained.
Canada’s economy contracted at a 1.6% annualized pace in the second quarter as exports and investment fell amid the ongoing trade dispute with the U.S. And while core measures of inflation are elevated, the yearly change in price pressures is below the central bank’s 2% target. Inflation data for August are due a day before the bank’s September rate decision.
Scotiabank expects back-to-back quarter percentage-point cuts at the bank’s next two meetings. In a report to investors, economist Derek Holt argued that officials aren’t likely to move from the sidelines to deliver just one bout of stimulus.
“One cut wouldn’t be worth Macklem getting out of bed to deliver as the effects would be scant and markets would pressure him to keep going,” he said.
–With assistance from Mario Baker Ramirez.
©2025 Bloomberg L.P.
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Last modified: September 6, 2025