Central bank's quarterly survey finds consensus but uncertainty has been compounded by immigration policy shift
Financial market participants and economists may be recalibrating their expectations for the Bank of Canada’s next interest rate move, but the central bank’s own quarterly survey has revealed a consensus opinion that it will be a hike.
The quarterly survey of 30 financial market participants, including dealers, banks, asset and pension fund managers, insurers and researchers, found a consensus that the central bank will hold its benchmark rate at 2.25 per cent before raising it to 2.5 per cent in the third quarter of 2027, according to a report in the Financial Post. However, a significant 63.3 per cent of respondents said the risks were “skewed to a lower path,” reflecting persistent uncertainty about the Canadian economy’s trajectory.
This marks a shift from the previous survey, where most expected the Bank to cut rates to 2.25 per cent and hold them there until 2026. The Bank’s most recent cut to 2.25 per cent on October 29 was accompanied by a signal that rates were “at the right level to support the economy without spurring inflation”.
But the outlook is far from settled. The debate over whether the Bank will cut rates again is intensifying as economists analyze the latest data, forecasts, and signals from the U.S. Federal Reserve. A fresh factor now complicates the picture: Canada’s new immigration targets.
Last week, the federal government committed to reducing the share of temporary residents to less than 5 per cent by 2027, a move that will see the number of new temporary residents slashed by 43 per cent from about 674,000 in 2025 to 385,000 in 2026. According to Capital Economics, this could reduce Canada’s population growth to “essentially zero” over the next two years — well below the Bank’s own forecast of 0.5 per cent growth.
“The more likely outcome of lower immigration is that it will cause the unemployment rate to fall faster than we forecast,” Stephen Brown, deputy chief North America economist at Capital Economics, told the Financial Post. The surprise drop in Canada’s jobless rate from 7.1 per cent to 6.9 per cent in October, with a gain of 67,000 jobs, has already persuaded many that the Bank will not cut in December and perhaps for even longer.
In its October monetary policy report, the Bank estimated that the breakeven employment growth rate will fall to 5,000 jobs a month, or 0.3 per cent year over year. But if population growth is zero, Capital Economics warns, breakeven employment could be negative, meaning the unemployment rate would fall even if there were no net job creation. “In that environment, the unemployment rate would fall by 0.2 percentage points per year even if there were no net job creation,” Brown noted.
Such a scenario would make the Bank even more cautious about lowering interest rates, out of concern that easier policy could reignite inflation. “Given the lack of any meaningful fiscal stimulus in the budget last week, these new immigration targets are the bigger risk to our view that the Bank will resume cutting interest rates next year,” Brown added.
