Canada’s real estate market finally got some good news—cheaper financing may be coming. The Bank of Canada (BoC) will cut rates three times before the traditionally busy Spring real estate market, according to a report from BMO Capital Markets. The recent labour market erosion has the market fully pricing in the first cut within the next few days. However, the bank notes caveats that sticky inflation and an upcoming CPI report can swing market expectations fast.
Bank of Canada To Cut Rates 3x Before Spring 2026, Market Forecasts First Cut Within Days
Canada’s oldest bank sees rates being slashed fairly aggressively before Spring 2026. BMO’s current forecast is expecting 75 basis points (bps) trimmed by Spring 2026, which works out to three rate cuts. They note the market is currently pricing in the first cut in just a few days, at the BoC’s September 17th meeting.
“We see scope for 75 bps of further easing through the spring of 2026. That would leave rates at the low end of the neutral range and give the economy a little bit of extra support that it seems to need,” writes Robert Kavcic, senior economist at BMO.
BoC Interest Rate Cuts Justified By Weak Job Market, Warns BMO
There’s no shortage of economic data demonstrating the economic slowdown, but labour is a critical concern. Kavcic warns the “clear slack in the job market” is now evident, with weak demand for the country’s surplus labour—a point the BoC itself has expressed concerns over. Further complicating the issue is slowing wage growth, which naturally accompanies excess labour.
Reduced disposable income, from job losses and slowing wage growth, means slower consumption. Slower consumption theoretically means slower price growth.
BMO believes rates would be at the low end of the BoC’s neutral policy rate. Neutral is the point where interest rates neither reduce consumption nor provide an incentive—they’re just right. The Goldilocks of monetary policy.
BoC Rate Cuts Aren’t A Sure Thing, May Not Stimulate As Expected
BMO has been remarkably accurate with recent calls but eight days is a long time when it comes to policy data. The most important risk to market expectations of a rate cut on September 17th is the CPI report scheduled just a day earlier. Currently, the BoC’s preferred inflation measures, CPI-trim and CPI-median, are sitting fairly close to its upper band of tolerance. The central bank previously warned that slashing rates too early can undermine the progress it’s made so far.
The belief that three cuts would also put Canada’s key interest rate in the neutral range is also optimistic. The BoC itself has stated its neutral policy rate is difficult to determine, as the economy is relatively small in contrast to its largest trade partner. Consequently, the BoC has stated it uses the US neutral policy rate in its estimates—a problem in normal times, but more apparent with the recent decoupling of the two economies.
None of these points undermines BMO’s forecast of three rate cuts before Spring 2026. However, the first cut may not happen this month, as the market’s opinion has been volatile and there’s a CPI report due the day before. If inflation remains sticky—or accelerates—market expectations can instantly collapse.
Speaking of less obvious risks—the impact of these cuts may not spark the real estate activity many expect. Pandemic-era easing was meant to facilitate an intentional reduction of economic activity that resumed when it was open. The easy credit had few places to go, and wound up in housing. In contrast, the forecast cuts would be made to address a shrinking economy and uncertainty that policymakers are failing to mitigate. Aggressive rate cuts during the frothy real estate markets of the early 80s and 90s failed to stimulate activity for years.