TD Securities Sees Bank of Canada Holding Rates Through 2026

The Bank of Canada is expected to hold its Overnight Rate at 2.25% through 2026, according to TD Securities. This decision comes despite headline Consumer Price Index (CPI) being near the top of its target range. The bank projects a return to neutral rates at 2.75% in 2027, via two quarter-point hikes in January and March.

The Canadian economy has been impacted by oil price shocks, with prices pushing above $100 per barrel due to the US-Iran conflict. However, TD Securities believes that these shocks have largely normalized. As a result, the Bank of Canada is expected to remain patient, waiting for more clarity on the geopolitical outlook and its effects on domestic CPI.

The combination of well-anchored expectations, narrower inflation breadth, and muted core inflation momentum has given the bank the confidence to look through stronger headline CPI as excess supply is gradually absorbed. The minutes from the Bank of Canada's meeting will be published on September 16th, but no other public events are scheduled.