BoC: Rates seen on extended hold – TD Securities

FXStreet Insights Team FXStreet

TD Securities strategists Robert Both and Emma Lawrence expect the Bank of Canada (BoC) to keep the overnight rate at 2.25% throughout 2026, despite markets pricing significant tightening. They argue higher energy prices linked to US strikes on Iran are a shock the BoC can largely look through, with policy normalization only starting in early 2027.

BoC seen sidelined despite market repricing

"We believe the Bank of Canada has reached the end of its easing cycle and look for them to hold the overnight rate at 2.25% through 2026, before a return to neutral in early 2027."

"Higher energy prices resulting from US strikes on Iran and subsequent threats to global crude supply have introduced a new shock to the Canadian outlook, although we believe the Bank can remain patient as it waits for more clarity on the geopolitical backdrop and spillovers to the domestic outlook."

"We expect the Bank to look through the headline inflation shock, while the current environment of excess supply should help to absorb the incremental boost to growth."

"We continue to look for the Bank to stay on the sidelines through 2026, before hiking in 2027Q1 to bring policy back to neutral."

"Senior Deputy Governor Rogers is set to discuss the economic outlook in a speech to the Brandon Chamber of Commerce on Thursday, March 26th, where markets will also look for any comments on the recent shift in near-term rate expectations with over 75bps of tightening priced for the end of 2026."

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

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