Toronto-Dominion sees the Bank of Canada’s latest rate cut as an insurance policy against the mounting risks of prolonged tariffs, which are expected to exert significant downward pressure on the Canadian economy. While recent economic data has shown resilience, the central bank has shifted its narrative to fully account for the impact of escalating trade tensions, diminishing the relevance of past economic outperformance.
TD’s updated forecast now anticipates a shallow recession, assuming Canadian exporters will face an effective tariff rate of 12.5% over the next six months—an extraordinary jump from previous levels below 2%.
Given this backdrop, TD expects the Bank of Canada to maintain its dovish stance as long as tariff pressures persist.
While the bank projects the overnight rate to reach 2.25% by June, it sees limited scope for deeper cuts due to the need to carefully manage inflation expectations amid ongoing economic uncertainty.
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Earlier:
Bank of Canada Policy interest rate step downs so far
