TD on Bank of Canada's Possible Next Moves

11:00 AM EDT, 08/20/2025 (MT Newswires) -- Never say never, but TD said it expects that cooler economic growth will turn down the temperature on Canadian inflation, enabling the Bank of Canada to cut interest rates later this year.

The labor market is expected to moderate a bit from here and, together with the ongoing effects of the trade shock, the economy should continue to churn out a sub-par performance, wrote the bank in a note to clients.

A weak domestic demand backdrop should help reduce inflationary pressures, stated TD.

However, the bank is mindful that Canada's policy rate is already within the BoC's estimate of the neutral range, and TD has yet to account for the full stimulative scope of the upcoming Fall government budget.

Both create a less compelling case to cut than in the United States if inflation proves more stubborn, pointed out the bank. In addition, unlike its U.S. counterpart, the Canadian housing market has already staged a modest comeback, in a nod that the interest rate channel is working at stimulating demand.

"Intuitively," Canada's central bank has a bit of room to further lower rates, but not a whole lot, according to TD. Markets have one full cut priced for the year, but it would be unusual for the BoC to apply a one-and-done approach.

Given this is the "tweaking" stage of monetary policy, TD views two options on the table: zero or two cuts.

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