BoC: Cautious hold and two‑sided risks – TD Securities

TD Securities strategists, including Andrew Kelvin and colleagues, expect the Bank of Canada to keep the Overnight Rate at 2.25% through the April meeting and likely for the rest of 2026. They see the Bank striking a more balanced but still cautious tone, emphasizing two-sided growth risks from higher Oil prices and USMCA renegotiation while looking through near-term inflation spikes.

BoC seen on extended hold with neutral tone

"We look for the Bank of Canada to hold rates at 2.25% as the policy statement strikes another cautious tone. Higher energy prices will drive a sharp upgrade to the Bank's inflation forecast in the April MPR, with more modest revisions to core inflation and GDP. Crucially, we look for the Bank to note "two-sided" risks to growth from higher oil prices, and maintain its pledge to look through near-term inflation impacts."

"Putting everything together, we believe the Bank will be able to strike a more balanced tone now that near-term recession fears have subsided. The Bank should acknowledge that growth is picking up, but material slack still remains and we expect the communique to pay special attention to the risks associated the ongoing USMCA renegotiation. Critically, we look for the Bank to describe the growth risks associated with the Hormuz Strait closure as two-sided."

"We still expect the BoC to stay on hold for the rest of 2026, especially given downside surprise on recent CPI. The recent moves higher in rates, particularly in BoC pricing further out, should be seen more as a function of importing the pricing out of Fed rate cuts rather than an accurate reflection in a change of outlook. December is currently priced in at 2.61%, and a return to pre-war levels will likely be slower rather than traded off a single dovish data point or communication."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)