|

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.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD meets support near 0.7150

AUD/USD comes under renewed and quite strong selling pressure ahead of the Asia opening bell on Friday, drifting back toward multi-day troughs near 0.7150, where it seems to have met some decent contention for now. The Aussie’s decline follows the inflation-reignited uptick in the Greenback in response to robust US factory-gate prices in August.


USD/JPY consolidates around 153.50 as bears turn cautious ahead of US inflation

USD/JPY stabilizes above 153.50 during the Asian session on Thursday, but remains near a seven-month low set earlier this week as hawkish BoJ repricing continues to underpin the Japanese Yen. Meanwhile, rising September Fed rate-hike bets and escalating US-Iran tensions help ease US Dollar selling pressure, offering some support to the currency pair ahead of US inflation figures.

Gold remains weak, retargets $4,350

Gold keeps the choppy price action on Thursday, now slipping back toward the $4,350 region per troy ounce amid the robust bounce in the US Dollar as well as rising US Treasury yields across the curve, particularly following US Producer Prices and ahead of Friday’s more relevant US CPI data.

Bitcoin and Gold Outlook: BTC and XAU drop as US PPI broadens rate-hike bets
Cryptocurrency prices are broadly correcting, led by Bitcoin (BTC), which is trading around $77,000 on Thursday, marking four consecutive days of declines. Meanwhile, Gold (XAU) remains sideways, hovering around $4,365, with upside capped below $4,400.
ECB recap: A hawkish hike despite downside growth risks
The European Central Bank (ECB) increased the Deposit Facility Rate to 2.50%, the Refinancing Rate to 2.65% and the Marginal Lending Facility to 2.90%, effective from September 16. The decision was accompanied by a clear warning that the outlook remains highly uncertain, with risks tilted to the upside for inflation and to the downside for growth.
Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight
The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.