National Bank Says BoC Likely Done Cutting Rates as Wage Pressures Threaten Services Inflation

06:03 AM EST, 12/01/2025 (MT Newswires) -- The Bank of Canada lowered its policy interest rate for the second consecutive time in October, but indicated that it believed it had finished cutting rates for the time being, said National Bank of Canada.

This conviction has likely strengthened in recent weeks, noted the bank.

While economic data has been mixed, wage pressures have accelerated recently despite numerous indicators suggesting excess supply of labor, stated National Bank. In 2025, employees involved in wage negotiations secured an average annual wage increase of 3.3%, well above the level seen in the decade before the COVID-19 pandemic.

This situation is having an impact on inflation, particularly in the services sector, which is much more sensitive to wage pressures, pointed out the bank. In October, annual inflation in services excluding shelter rose by 3.5%, the highest rate since May 2023.

In this context, National Bank believes that suspending interest rate cuts is appropriate.

Combined with interest rate cuts, the federal government's announcements have limited the damage in 2025 and should enable the economy to emerge from its slump in 2026, provided that trade tensions with the United States ease, it added.

The bank forecasts gross domestic product growth of only 1.1% in 2026 due to demographic weakness, following 1.7% this year. This forecast incorporates economic weaknesses that are expected to persist until the end of the current year, as well as a gradual improvement in 2026.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.