Bank of Canada Surveys Underscore The Case for Additional Rate Cuts, Says Desjardins

11:44 AM EDT, 10/20/2025 (MT Newswires) -- Responses in both the Q3 business (BOS) and consumer (CSCE) surveys of the Bank of Canada highlighted weakness in the labor market, said Desjardins after Monday release.

Most firms in Canada don't expect to hire more staff over the next year, noted the bank.

Separately, in the CSCE, a sharp decline in job prospects was seen in the public sector, coinciding with the federal government's comprehensive expenditure review.

Overall, two-thirds of consumers still see Canada falling into recession over the next 12 months, while the share of businesses planning for a recession increased to 33% from 28% in Q2. That said, Desjardins notes that the majority of interviews for these surveys were conducted before the federal government announced that it was removing most of Canada's retaliatory tariffs on United States products.

As a result, the responses might overstate the current economic weakness, pointed out the bank.

By the same token, though, the survey responses also seemingly overstate the extent to which businesses and consumers are concerned about inflation, added Desjardins. While both surveys suggested that tariffs were expected to raise costs in Canada, that very likely changed after the removal of counter-tariffs on U.S. goods.

In addition, as a result of the weak economic environment, firms' inflation expectations looked well anchored even before accounting for declining trade tensions.

The timing of the BoC's surveys make it difficult to interpret the results, according to the bank. That said, with inflation expectations, if anything, lower than what was reported in these surveys and the economy nowhere near full health, Desjardins sees a strong case for further rate reductions.

The bank continues to forecast two more 25 basis point cuts for this cycle, which would take the policy rate down to 2.00%.

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