RBC Expects Another BoC Rate Cut in October, But Scotiabank Flags Risks of a Pause

Toronto | October 14, 2025 — The Bank of Canada’s next policy meeting later this month has become a fresh battleground for economists. On one side, Royal Bank of Canada (RBC) anticipates another 25 basis-point rate cut in October, following September’s easing. On the other, Scotiabank is cautioning that stronger-than-expected job numbers could delay further action, leaving mortgage borrowers and housing markets guessing about what comes next.

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RBC’s Case: Weak Growth, Softer Inflation, Labour Slack

RBC economists argue that the conditions for additional monetary easing are firmly in place. September’s cut marked the first step in what the bank sees as a series of gradual reductions designed to shore up a slowing Canadian economy.

Claire Fan, senior economist at RBC, highlighted three main factors shaping the call for a second consecutive cut:

• Sluggish GDP growth: Canada’s growth trajectory has been soft, with business investment and consumer demand moderating after years of high borrowing costs.
• Cooling inflation pressures: Core inflation measures have eased closer to the BoC’s 2% target, reducing the need for restrictive rates.
• Labour market slack: Despite headline job gains, wage growth has been moderating, and labour underutilization remains higher than pre-pandemic levels.

RBC expects that without “material upside surprises” in economic data, the Bank will prefer to press ahead with another 0.25% cut at its October 29 meeting. This would take the policy rate further down from 4.25% — its level after the September reduction — and continue a path toward easing household debt burdens.

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Scotiabank’s Counterpoint: Job Gains May Force a Pause

Scotiabank economists are more skeptical. Derek Holt, head of Capital Markets Economics at Scotiabank, notes that the recent September labour force survey showed a net gain of 60,400 jobs — far stronger than expected. The unemployment rate held steady at 7.1%, indicating resilience in Canada’s labour market despite higher borrowing costs.

For Holt, that resilience complicates the case for further near-term easing. “The data strengthen the argument that the BoC has room to wait before delivering additional cuts,” he argued. Holt believes that while a cut remains possible, a pause is now more likely unless inflation or wage data unexpectedly weaken ahead of the October decision.

The interpretation also matters: if seasonal adjustments exaggerated the scale of the September hiring surge, the central bank could still lean toward a cut. But Holt maintains that the BoC may be wary of overstimulating demand while employment remains robust.

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Implications for Mortgage Borrowers

For Canadian households, the October decision could have immediate consequences:

• Variable-rate mortgages: Another rate cut would directly reduce prime rates, trimming monthly payments for variable-rate borrowers. For those already stretched by past increases, even a small cut could provide relief.
• Fixed-rate renewals: The outlook is more complicated. Even if the BoC trims its policy rate, bond yields and fixed-rate mortgage pricing may not fall in lockstep. Homeowners rolling off ultra-low 2020–21 vintages could still face 15–20% higher payments, as BoC staff recently warned.
• Housing activity: Lower rates could stir demand in certain regions, especially among first-time buyers squeezed by affordability challenges. But if Scotiabank’s “pause” scenario plays out, confidence could remain subdued until a clearer rate-cut path emerges.

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A Narrow Policy Window

The BoC faces a difficult balancing act. Too little easing could worsen the slowdown in consumer demand and housing. Too much easing risks reigniting inflation or overstimulating credit growth, especially with mortgage renewals looming.

Complicating matters further, global trade frictions and U.S. tariff actions are raising uncertainty for Canadian exports. RBC warns that such shocks, combined with domestic weakness, argue for the central bank to act sooner rather than later.

At the same time, regulators are sounding the alarm. The Office of the Superintendent of Financial Institutions (OSFI) recently flagged mortgage renewals as one of the biggest risks to financial stability, with nearly two-thirds of mortgages set to reset at higher rates by 2026. This risk reinforces the importance of carefully calibrated monetary policy.

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What to Watch Ahead of the Decision

The Bank of Canada’s October 29 meeting will be accompanied by a Monetary Policy Report, providing fresh projections for inflation, growth, and labour markets. Before then, two indicators stand out:

• CPI data on October 21: A softer inflation print could validate RBC’s call for an additional cut.
• Business Outlook Survey: Due just before the meeting, it will offer insights into credit conditions and investment sentiment across industries.

Investors are also tracking U.S. Federal Reserve policy, which influences Canadian bond yields and mortgage rates. Any divergence in U.S.–Canada policy paths could affect capital flows and currency dynamics.

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Outlook: Cut or Pause?

For now, consensus is split. RBC believes another cut is “more likely than not.” Scotiabank counters that strong jobs data may lead to a pause. Mortgage borrowers should prepare for either outcome: modest near-term relief if the BoC cuts, or continued pressure if policymakers opt to wait for clearer signs of weakness.

What seems certain is that mortgage renewals, affordability pressures, and rate volatility will remain front and center for Canadians well into 2026.