The Bank of Canada will eventually be forced to cut rates to 0.25%, with a rate cut possible as soon as next week, as the weakness in oil prices slows the rest of the economy, says HSBC Bank Canada in a new report.

The firm says that the decline in oil prices is spilling over to other sectors. The latest Business Outlook Survey from the Bank of Canada, which was released on April 6, reveals “an oil producing and exporting economy that is still in the early stages of dealing with a sharp decline in the price of its key export,” it says. “The results also highlight the uncertainty as to when positive effects from lower oil prices might begin to provide sustained lift to the economy.”

In this environment, HSBC expects a weak job market and low inflation expectations. It suggests that it will be October before there is evidence that the positive impacts of lower oil prices are outweighing the negatives.

“In our view, the impact of the oil price decline has not yet been fully reflected in economic data, and the gradual unfolding of the positive effects leaves the economy vulnerable to further downside risks,” it says. “We remain of the view that the Bank of Canada will cut rates further, with the overnight target rate to be lowered from 0.75% back to the effective lower bound of 0.25%.”

For the Bank of Canada’s next meeting, slated for April 15, HSBC says that the market is expecting the Bank to remain on hold. “However, we see the call as much more balanced, with a rate cut a very realistic possibility in the context of the Bank releasing updated forecasts in the Monetary Policy Report (MPR),” it says. “In our view, the Bank of Canada is likely to lower both its outlook for GDP growth in 2015 and the trajectory for inflation through this year.”

HSBC notes that its own GDP forecast is already below the consensus view. “Our more cautious forecasts for GDP growth and inflation suggest to us that the economy requires further stimulus. We maintain our call that the Bank of Canada will eventually lower its overnight target rate back to the effective lower bound of 0.25%,” it concludes.