Bank of Canada Emphasizes Inflation Risks, Hikes Predicted for 2027

The Bank of Canada surprised markets by adopting a more hawkish tone in its latest policy decision. According to TD Securities economists Robert Both and Emma Lawrence, this shift emphasizes upside inflation risks despite core inflation staying subdued.

They expect the Overnight Rate to remain at 2.25% through 2026, with a return to neutral at 2.75% in 2027 via two 25 bp hikes.

Oil shocks and trade tensions are seen as important but not yet rate-hike deterrents, although recent oil price spikes above $100 per barrel have introduced a meaningful shock to the inflation outlook.