Economists split on timing of next Bank of Canada rate move
Analysts at Royal Bank of Canada and TD Securities diverge on whether the Bank of Canada will raise its overnight rate from 2.25% at its October 28 decision, with TD expecting further tightening by early 2026.
Royal Bank of Canada (RBC) economists Frances Donald and Nathan Janzen say a 25 basis point hike on Wednesday is possible, though they see December or January as plausible alternatives. They argue the Canadian economy still has enough slack to slow the pace at which inflation feeds through, so there is no immediate need for the Bank of Canada (BoC) to act now.
RBC points to recent signals from the central bank, including the September 2 rate decision and comments from Governor Tiff Macklem at the International Monetary Fund meetings, as evidence that the BoC may no longer want to wait passively for inflation to show up before responding. The firm’s base case already assumed 100 basis points of increases over 2027, so an October move would not significantly change its medium-term outlook, though it could raise the odds of weaker growth in the fourth quarter, particularly in interest-rate-sensitive sectors such as housing.
TD Securities, led by Andrew Kelvin and Robert Both, takes the opposite view. The firm expects the BoC to hold at 2.25% this week, citing limited breadth in inflation pressures and uncertainty about near-term growth. TD has pulled forward its forecast for the next two hikes to December and January, from a prior call of January and March, which would bring the policy rate to the midpoint of the BoC’s estimated neutral range. The firm said waiting would let the central bank gather six more weeks of data on inflation, growth and the impact of new tariffs before committing to a move.
Why it matters: The BoC decision and its guidance will shape rate expectations for the Canadian dollar and Canadian government bonds. A hike or more hawkish signal would tend to support USD/CAD moving lower and push short-term Canadian yields higher, while a hold would ease pressure on rate-sensitive sectors like housing but could weigh on the currency.
Sources: Investing.com (economy); FXStreet; FXStreet