The Bank of Canada ‘s neutral interest rate might be as much as 50 basis points too high, so a lower rate should be called for, says a new report by Rosenberg Research & Associates Inc. A 50-basis-point cut would drop the neutral range to 1.75 per cent to 2.75 per cent from the current range of 2.25 per cent to 3.25 per cent, which was reaffirmed by the Bank of Canada in April. The neutral rate refers to i nterest rates that neither stimulate nor slow the economy. The Bank of Canada has held its overnight lending rate at the bottom of the range at 2.25 per cent for its past five decisions. “We think that there is more than enough evidence to suggest that the neutral range might actually be lower, possibly by as much as 50 basis points,” David Watt, senior vice president and director of economic research at Rosenberg Research, said in a note on July 9. Under a lower neutral range, a policy rate of 2.25 per cent would not be as stimulative as it appears to be, he said. Watt said the evidence that the neutral rate could be too high includes weak economic growth , little pressure on wage growth and core inflation near the Bank of Canada’s two per cent target. He also said recent economic developments “are expected to weigh on Canada’s neutral rate,” further making the case for a lower one. For example, population growth contracted at the start of the year for the first time since records have been kept due to immigration cuts while natural population growth stalled. The federal government has more cuts planned for the number of non-permanent residents into 2027, which Watt said will further shrink the labour force. Meanwhile, permanent resident immigration has slowed and economic immigration is below Ottawa’s target, feeding into “downside risks” to the neutral rate, he said. Watt said other structural developments that make a case for a lower neutral rate include the slowdown in machinery and equipment investment compared with the United States, where it has been rising for the last 30 years, and the non-renewal of the Canada-U.S.-Mexico Agreement — triggering a decade of reviews — means companies face years of ongoing “trade friction” that will leave businesses feeling squeamish about making any long-term plans. Even though Canadian exports, with the exception of lumber, autos, aluminum and steel, are subject to the lowest tariff rates compared with other countries trading with the U.S., Watt said businesses should “be prepared for further attempts to erode those protections, given that the U.S. administration has demonstrated more activism on trade and tariff issues.” The Bank of Canada announces its next interest rate decision on July 15. Posthaste: These provinces can afford ‘near-zero’ job growth in ‘new phase’ for Canada’s labour marketPosthaste: Nearly a quarter of Canadians are planning to change jobs in the next six months, survey says Sign up here to get Posthaste delivered straight to your inbox. Going into 2026, Fitch Ratings Inc. had a “deteriorating” outlook for the Canadian banking sector as the country grappled with declining economic growth and trade tension uncertainties. But that outlook was upgraded to neutral last month after Canada’s Big Six posted higher-than-expected profits during the first half of 2026. The change in Fitch’s outlook reflects how resilient Canada’s economy has been, which has helped the Big Six banks comfortably beat analysts’ earnings expectations and push their share prices even higher. — Naimul Karim, Financial Post Read the full story here. Today’s Data: Canada job numbers for June and building permits for May Earnings: MTY Food Group Inc. Who is Anko Van der Werff, Air Canada’s incoming CEO? Are you richer than you think? If so, it’s time to think about who is going to get your money Intact Financial reports ‘elevated’ losses driven by weather events Canadian savings deteriorate as spending outpaces income: report It can feel frustrating to work hard at paying down a line of credit, only to see the balance creep back up again a few months later. The reason this happens so easily is that a line of credit has no fixed payment schedule that moves the balance toward zero and keeps it there. FP Answers offers tips on breaking free from the cycle, including getting back on budget and changing the habits behind the rising credit balance. Find out more Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors. Sign up here. Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).McLister on mortgages Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Financial Post on YouTube Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more. Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg. 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Posthaste: The Bank of Canada’s neutral rate might be too high, says this economist
