Desjardins Doesn't Now See Further Rate Cuts at Bank of Canada

11:15 AM EST, 12/09/2025 (MT Newswires) -- With the policy rate at the lower end of Bank of Canada's estimated neutral rate range , and still higher than its peak of 1.75% between the Global Financial Crisis and the COVID-19 pandemic, it is difficult to see how central bankers can have any confidence that the current 2.25% interest rate setting is low enough to heal the ailing economy, said Desjardins.

The BoC is scheduled to release its policy statement at 9:45 a.m. ET on Wednesday.

Despite strong recent labor force and gross domestic product figures, Canada's economy still appears "fragile," noted the bank.

However, reading between the lines of the October Monetary Policy Report, it seems as if something else is at play, stated Desjardins. The BoC is very afraid of another bout of inflation. So rather than being confident that it has done enough, the Canadian central bank is really saying that it has done as much as it thinks it can.

What central bankers don't seem to be giving enough weight to in their calculus is the risk that interest rates at these levels will choke off a prospective cycle of business investment, pointed out Desjardins. The federal government has high hopes for crowding in private capital and has made clear strides to spur business investment.

Separately, the Artificial Intelligence revolution in the United States may soon begin spilling over into Canada more clearly, as firms figure out how to operationalize the tools that have been developed. The latest productivity numbers show that businesses have also begun to adapt to the new trade dynamic with the United States., added the bank.

Firms have become leaner, but production is still growing. It would be a shame if central bankers snuffed out these prospects.

Because the Bank of Canada was so clear and forceful in its messaging, Desjardins is no longer forecasting any more cuts for this cycle. The bank expects the BoC will maintain the language from the last statement about the current level of rates being appropriate.

However, for the next six months or so, until fiscal policy becomes a more important player, the BoC is the only game in town for the economy. If evidence emerges that its cost-push inflation theory has led them astray, the BoC will need to change tack quickly. There's too much at stake to delay further easing unnecessarily, according to Desjardins.

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