BoC: Later easing path as inflation risks linger – Standard Chartered

Standard Chartered economists Dan Pan and Steve Englander now expect the Bank of Canada to delay its next rate cut to Q3 2026, while keeping the end‑2026 policy rate forecast at 2%. They argue that higher Oil prices and a recovering domestic demand backdrop should keep the central bank on hold, even as weak labour markets and trade uncertainty still justify further easing.

BoC cut pushed back to third quarter

"We are pushing out our next Bank of Canada (BoC) rate-cut call to Q3 instead of Q1, but still see the end-2026 policy rate at 2%. Soaring oil prices following the Middle East conflict raise near-term inflation risks, limiting the room for immediate rate cuts. The domestic demand recovery near end-2025 further bolsters the case for the BoC to stay put for now."

"The market is pricing in over 30bps rate hikes in 2026 following the Middle East fallout, but we still see room for BoC easing if the energy price run-up is contained. We think that growth is likely to surprise to the downside especially as uncertainty over the USMCA renegotiation drags on."

"While we do not expect the deal to fall apart, risks of further escalation in bilateral trade tensions remain high against the backdrop of Carney’s push for de-risking from the US and Canadians’ deteriorating opinion towards their largest trade partner. Prolonged uncertainty over the trade deal could further limit business hirings and delay investment decisions. "

"Canada’s efforts to recalibrate its trade relationships with other parts of the world are likely to continue regardless of the USMCA outcome. The costs of reconfiguring trade could create cyclical weakness in other parts of the economy. The BoC may be willing to ease further this year as long as inflation risks remain contained."

"Risks are biased towards the central bank staying put throughout the year, especially if domestic demand finds a better footing. Prolonged energy price shock could even tilt the balance towards a hike."

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