Bank of Canada: Gradual return to neutral – TD Securities

TD Securities’ macro team, led by Andrew Kelvin and Robert Both, does not share market conviction for an October Bank of Canada rate hike. They expect the BoC to hold at 2.25% now, then deliver 25bp increases in December and January, taking policy to the midpoint of its neutral range while monitoring inflation breadth, growth data and the impact of new tariffs.

October hold then December and January hikes

"We do not share the market's conviction for an October rate hike given limited inflation breadth and uncertainty over the near-term outlook."

"Functionally, there is a trade-off between certainty and inflation. The Bank can wait for more data to confirm their forecast, at the cost of allowing incremental increases in underlying inflation."

"We would simply contend that near-term inflation pressures are contained enough for the Bank to wait and see another six weeks of data."

"We therefore look for the Bank of Canada to deliver a hold with a clear indication that rates will be moving higher in future meetings, contingent on a benign growth path."

"We do not see the urgency to hike in October, but we don't expect rates to remain at 2.25% for much longer. We are pulling forward the hikes in our forecast from Jan/Mar to Dec/Jan, which would allow the Bank to lean against the risk of broader inflation pressures while giving it some more clarity around the near-term growth outlook and impact of new 338 tariffs."

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