TD Securities economists Robert Both and Emma Lawrence forecast that the Bank of Canada (BoC) will maintain its Overnight Rate at 2.25% through 2026 before raising it to a neutral 2.75% in 2027. They anticipate two 25 basis point hikes in January and March 2027.
The analysts argue that despite market expectations of further tightening following the BoC's September policy decision, softer economic growth and trade uncertainties should allow the central bank to remain cautious on inflation risks. They believe the BoC can stay patient as long as higher oil prices do not significantly impact underlying inflation.
The near-term growth outlook appears uncertain due to the implementation of Section 338 tariffs in August, which could slow Canada's economic momentum. Early data for July and August already shows signs of deceleration, and renewed trade uncertainty may further dampen growth.
The Bank of Canada is scheduled to make several public appearances at the IMF/IIF Annual Meetings in Bangkok.