Scotiabank Sees Bank of Canada's Next Monetary Move as A Hike

02:45 PM EST, 12/29/2025 (MT Newswires) -- Scotiabank on Monday provided a reminder of its 'Canadian Rates Outlook 2026', published earlier in December, in which it said that it expects the Bank of Canada to keep interest rates on hold at 2.25% over the first half of 2026 before switching its attention to implementing 50bps of policy tightening over the second half of it.

"That may turn out to be greater and earlier than expected," Scotia said, before adding: "This is a view we've had since September with markets recently moving in this direction."

According to Scotia, the Canada-based rates curve is expected to flatten over time. Canada's short-term yield spread versus the United States is expected to narrow, aided by Federal Reserve cuts and in support of the Canadian dollar's (CAD or loonie) expected appreciation, while the longer-term positive U.S. yield differential over Canada narrows.

But Scotia said: "There is only one certainty to these projections -- 2026 probably faces as many uncertainties as 2025 did."

Scotia also noted the Canada 10-year anchor point on the curve is forecast to rally into the early new year before cheapening resumes. An equilibrium level of about 3.75% is forecast, with risks skewed higher than lower.

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