Bank of Canada Rate Hike Pushed into Early 2027

Experts at National Bank of Canada (NBC) are reaffirming their prediction that the Bank of Canada will raise interest rates in Q1 of 2027. Taylor Schleich and Ethan Currie argue that despite strong Canadian labour data and a robust second-quarter GDP, accumulated slack and data lags should delay tightening.

The NBC economists point out that inflation is near 3% and is likely to remain above target, which might suggest a sustained economic rebound prompting a BoC rate hike this year. However, they believe it's hard to see the conditions for lift-off being met in 2026 due to data publication lags.

As a result, Schleich and Currie continue to view Q1:2027 as a more plausible starting point for BoC tightening. This is slightly later than what OIS markets imply but earlier than Bloomberg's median forecast, which sees the BoC sidelined until H2:2027.

The NBC economists also predict that short-term Government of Canada bonds will underperform U.S. Treasuries over the next year if their rate hike prediction comes true.