The Bank of Canada may have just poured cold water on rising bets for an interest rate hike in 2026, economists said, even as some now warn that the next move could ultimately be up, not down.
Policymakers held the benchmark rate at 2.25%, the bottom of the Bank’s neutral range, and signalled that policy is “about the right level” to guide the economy through tariff‑driven upheaval.
Markets that have priced at least one hike in 2026 quickly pared back those expectations after the decision, following a total of 100 basis points in cuts over 2025.
Still dovish – but with the door open
Capital Economics dropped its call for an early‑2026 cut, saying the statement’s emphasis on moderate growth and contained inflation expectations suggest little urgency to move.
“This all but kills our previously held view that the policy rate would eventually be lowered into accommodative territory at some point next year, given a sluggish recovery and lack of any offsetting short-term stimulus measures in the federal government’s latest budget,” Bradley Saunders, North America economist at Capital Economics, said.
“That said, we still hold a relatively dovish view.”
He pointed to the Bank’s reminder that “uncertainty remains elevated. If the outlook changes, we are prepared to respond.”
Other forecasters converged on a lengthy pause. Canadians should expect the Bank to be on hold for an “extended period,” Charles St‑Arnaud, chief economist at Servus Credit Union, said.
“The overall message from the decision is that the global and Canadian economies have been resilient in the face of the U.S. tariffs,” he said, adding that “the threshold for a cut is relatively high and would require a significant deterioration of the outlook.”
From cuts to a holding pattern
For Oxford Economics, “stronger‑than‑expected (third‑quarter gross domestic product) and recent labour market data likely solidified BoC's decision to stand pat after back‑to‑back 25‑basis‑point rate cuts,” senior economist Michael Davenport said.
He expects the Bank to hold through 2026, with the “next move likely a rate hike to 2.75%, but not until 2027.”
National Bank of Canada economists Taylor Schleich and Ethan Currie said the Bank “stopped short of validating market expectations for rate hikes as soon as the middle of next year.”
“Going forward, we see the Bank (of Canada) holding steady through at least the first half of the year,” they said, flagging a possible hike in late 2026 if unemployment continues to fall and inflation heats up.
Claire Fan, senior economist at RBC, said the Bank delivered a “well‑telegraphed, widely‑expected hold” and that “we think the BoC is done with rate cuts, and that the next change in interest rates is more likely to be a hike” following 275 basis points of easing since mid‑2024.
Derek Holt of Scotiabank likewise expected an “extended hold” before about 50 basis points of hikes starting in the second half of 2026, arguing that Taylor‑rule style estimates suggested the current rate might already be 25–50 basis points too low.
Douglas Porter, chief economist at BMO, said the Bank’s own language pointed to a year on pause. “We shifted our call to no rate changes for all of 2026 recently, and messaging from the Bank appears aligned with that view,” he said.
He added that “there is greater chance of a BoC rate cut than a hike in 2026, even if the most likely outcome is no move at all.”
TD economist Marc Ercolao said the central bank had “reinforced that it feels comfortable with the current level of interest rates,” and was “likely done with rate cuts for 2026, pending any upcoming economic turbulence.”
CMP
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