BoC Holds Rates Steady Amid Oil Price Shock and Slack

The Bank of Canada's decision to hold interest rates steady in October is not a surprise given the country's economic momentum and lingering slack. According to Ethan Currie from National Bank of Canada, while oil-driven inflation risks have increased, policymakers are cautious about tightening too quickly.

Markets have brought forward expectations for policy tightening, with OIS pricing around four BoC hikes by June 2026. However, Currie argues that this may be overstated relative to underlying fundamentals.

The Bank of Canada is focused on preventing second-round inflation effects, but the timing and pace of rate hikes will depend on how growth and inflation risks evolve. Despite a tightening bias across most advanced economies, uneven economic momentum and trade uncertainty have pushed expected hikes further out in Canada.