Bank of Canada Rate Hikes May Be Limited by Soft Economy

The Bank of Canada's interest rate hike plans may be tempered due to a soft economy and trade uncertainty, according to a report by Capital Economics. The central bank has held its benchmark rate at 2.25% since last October as it monitors the impact of U.S. trade disputes on the Canadian economy.

Capital Economics forecasts that the Bank of Canada will raise rates to 2.75% with a pair of quarter-point hikes starting next year, which would bring the policy rate to the middle of its neutral range. However, this is well short of the approximately 1.25 percentage points of total hikes markets now expect before the end of 2027.

The report also notes that recent rises in global bond yields are helping to tighten financial conditions and reduce pressure on the central bank to hike rates further.