The Bank of Canada is expected to keep its overnight rate unchanged at 2.25% through this year, with rate hikes likely postponed until 2027 as economic growth gradually regains momentum, Deloitte Canada said on Thursday.
BoC policymakers continue to balance opposing pressures as weak economic growth and excess capacity are helping to restrain inflation, while higher energy prices stemming from Middle East tensions present an upside risk, Deloitte wrote in its Summer Edition Economic Outlook note.
At its June 10 policy meeting, the central bank said April's annual inflation increase to 2.8% was largely energy-driven, with limited signs of broader price pressures. With growth weak but not recessionary, the current policy rate remains appropriate, stated Deloitte.
The overnight rate is expected to stay at 2.25% through this year before gradually rising to 3.25% by the end of 2027 as the economy recovers, though sustained high energy prices could accelerate the timing of rate hikes, added Deloitte.
Gross domestic product is forecast to grow by 0.7% this year and to 2.0% the year after, from 1.9% in 2025, according to Deloitte.
Fiscal policy is expected to become less supportive in 2026, with slower government investment and spending growth as Ottawa focuses on reducing budget deficits. The federal spending review reinforces this move toward greater fiscal discipline, Deloitte pointed out.
With public-sector support fading, a rebound in private-sector demand will be increasingly important for sustaining economic growth going forward.