Bank of America Global Research has previewed the upcoming Bank of Canada (BoC) meeting scheduled for October 28, 2026. The firm expects the BoC to maintain its current interest rate at 2.25%, though they acknowledge it is a close call. Markets currently price in an 85% chance of a rate hike, a significant increase from 35% just a week prior, driven by hawkish communication and rising inflation expectations.
The decision appears finely balanced. Weak labor data and core inflation below target suggest a hold, while headline inflation above 3%, along with the BoC's hawkish stance, leaves room for a potential hike. Bank of America notes that either outcome, whether a hold or a hike, is likely to come with hawkish messaging, which could push expectations of a December rate hike higher.
In the event of a surprise hold, the firm anticipates a sharp but short-lived rally in rates, with the press conference expected to maintain a hawkish tone. Conversely, a hike would likely result in modest bear flattening. Bank of America views a hike as the beginning of a small adjustment, totaling around two hikes, rather than the start of a full hiking cycle.