Bank of Canada Predicts No Rate Hike Until 2027 Despite Market Expectations

Rabobank's latest forecast predicts that the Bank of Canada will hold its overnight rate at 2.25% until 2027, defying market expectations of a rate hike by year-end.

The bank points to stronger Q2 GDP growth driven by exports as a reason for this decision, but also flags escalating US-Canada trade tensions and elevated headline CPI inflation linked to energy and trade-related risks.

Rabobank expects tariffs at current levels could reduce Canadian GDP by 0.3-0.4ppt through the end of next year, highlighting the economic fragility in the region.

The bank's trading implications suggest a prime opportunity for derivative traders to exploit the gap between market expectations and their forecast ahead of the September 2 interest rate decision.