The
Bank of Canada
is widely expected to hold its key overnight
interest rate
in place on Wednesday, but softening economic data and new uncertainty from the
trade war
with the United States are tempering talk of rate hikes, at least until much later this year.
“Conditions haven’t changed enough to prompt a shift (to a rate cut) from the BoC” at its Jan. 28 rate-setting announcement, Benjamin Reitzes, a Canadian rates and macro strategist at Bank of Montreal, said in a note Friday.
Still, he said recent economic data — which included some weaker labour trends — suggest potentially slower growth. This has “quieted” chatter at the end of last year that the bank could soon raise rates.
“The market (is) now leaning ever so slightly to cuts in the first half of the year,” Reitzes wrote, adding that the latest economic data “reinforced that risks are skewed toward a softer backdrop and further rate cuts.”
While a deeper softening is not his base case, downside growth risks prevail with uncertainty around trade and tariffs (and the upcoming
Canada-U.S.-Mexico Agreement
renegotiations) the key concerns, he said.
At the last rate-setting announcement in December, when the Bank of Canada held the overnight rate at 2.25 per cent, governor
Tiff Macklem
made it clear that it would take a material change to prompt a move, the economist noted.
Reitzes said Macklem has also suggested that
slowing inflation
could trigger more stimulus from the central bank in the form of future rate cuts should the economy sag.
But for now, economists are overwhelmingly predicting rates will be held this week.
In a note Friday, the economics team at Toronto-Dominion Bank said there is nothing in the data that is likely to make the Bank of Canada shift its policy stance, with a soft underlying
Canadian economy
continuing to face significant uncertainty despite moderating inflation.
“Indeed, it would take a significant undershooting of economic growth or meaningful softening in the
labour market
to force policymakers off the sidelines,” the economists wrote.
A decision on Wednesday to maintain the rate would be the second hold in a row after 100 basis points of cumulative cuts in 2025.
However, the consensus that this week’s rate-setting announcement will be a hold doesn’t take the prospect of rising rates off the table altogether.
In a note published Friday, Derek Holt, head of capital markets economics at Bank of Nova Scotia, said that while he does not expect a rate change on Wednesday, he is predicting that rates will be moving up again by the end of this year.
“The Bank of Canada will fire off everything it has by way of communication tools on Wednesday — and do nothing,” he wrote, adding that the central bank is nevertheless likely to drop clues about its future direction.
“We continue to forecast 50 (basis points) of hikes late this year.”
Economists at National Bank of Canada don’t expect the central bank to endorse either the doves or the hawks on Wednesday.
“Instead, they’ll reiterate that policy is appropriately calibrated in what should be a balanced, on-one-hand-on-the-other-hand statement,” the economists wrote in a Friday note.
“The statement is likely to balance December’s jobless rate increase and still-subdued hiring intentions against an acknowledgment of broader labour market improvements over recent months.”
• Email: bshecter@nationalpost.com
Bank of Canada expected to hold key interest rate, but case for future hikes seen weakening
2026-01-26 17:19:35
