The financial market believes the Bank of Canada will cut its policy rate to 2.25 per cent by the end of 2025 and then hold it there for all of 2026, according to a survey released by the central bank on Monday.

The quarterly survey of 30 financial market participants was conducted between June 25 and July 3, which was well before policymakers decided on July 30 to hold the overnight rate at 2.75 per cent for the third straight time.

Trade uncertainty, an economy that has proven to be more resilient than initially expected and evidence of underlying inflation were the three main reasons for the central bank holding. Measures of core inflation have hovered around three per cent since April.

Still, Bank of Canada governor Tiff Macklem left the door open for further rate relief. “If a weakening economy puts further downward pressure on inflation and the upward price pressures from trade disruptions are contained, there may be a need for a reduction in the policy interest rate,” he said on July 30.

Survey respondents’ median expectation for headline inflation was 2.2 per cent by the end of 2025 and two per cent by the end of 2026. They also pegged Canada’s

gross domestic product growth at 0.8 per cent at year-end and 1.8 per cent by the end of 2026, and they put the probability of a recession in the next six months at 35 per cent.

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Nearly 89 per cent of respondents identified an increase in trade tensions as the main downside risk, while 44 per cent said weaker consumer spending and a weaker

housing market. About 90 per cent cited the easing of trade tensions and larger-than-expected fiscal stimulus as their main upside risks to their growth outlook.