TD Securities strategists, including Andrew Kelvin and colleagues, expect the Bank of Canada to maintain the overnight rate at 2.25% through its April meeting and likely through the end of 2026. They believe the Bank will adopt a more balanced but still cautious tone, emphasizing bilateral upside risks from higher oil prices and USMCA renegotiations, factoring in short-term inflation spikes.

BoC noticeable when held for a long time with a neutral tone

“We expect the Bank of Canada to keep interest rates at 2.25% as the policy statement takes on another cautious tone. Higher energy prices will result in a sharp improvement in the Bank’s inflation forecast in the April MPR, with more moderate revisions to core inflation and GDP. Most importantly, we expect the Bank to note the ‘two-sided’ risks to growth from higher oil prices and maintain its commitment to analyze the near-term impacts of inflation.”

“Putting everything together, we believe the Bank will be able to strike a more balanced tone now that fears of a near-term recession have subsided. The Bank should acknowledge that economic growth is accelerating, but significant gaps remain, and we expect the announcement to pay particular attention to the risks associated with the ongoing USMCA renegotiation. Most importantly, we expect the Bank to characterize the upside risks associated with closing the Strait of Hormuz as two-sided.”

“We continue to expect the BoC to remain unchanged through the end of 2026, especially given the surprise of a decline in the recent CPI. Recent interest rate increases, particularly with BoC valuations going forward, should be viewed more as a function of price imports from Fed rate cuts rather than an exact reflection of the change in outlook. December is currently trading at 2.61% and the return to pre-war levels is likely to be slower rather than a result of from a single pigeon data or message.”

(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)