The Bank of Canada will be standing on "guard for thee," but that's not just against elevated inflation, but also sluggish growth and excessive slack, a two-way risk that is keeping interest rates frozen in place, said CIBC after Wednesday's policy statement.
The decision to leave the policy rate at 2.25% came as no surprise, given the clouded outlook ahead, noted the bank.
The BoC assumed that oil prices will gradually decline to US$75/barrel in mid-2027, still lifting near term inflation but leaving the growth outlook little changed from the prior forecast, one that only makes very gradual progress in eliminating economic slack, stated CIBC.
Gross domestic product growth for this year and 2027 is a tick faster, but the range for potential output has also been revised up by a matching amount, implying no change in the degree to which slack will be narrowed, according to the bank. The BoC sees "little evidence" of a spillover to core inflation so far, but will keep an eye on that, and "will not let higher energy prices become persistent inflation."
If that sounds hawkish, it's worth noting that Canada's central bank doesn't see that happening, projecting a spike to 3% inflation but a return to the 2% target early next year, a view CIBC shares, and while it says it might need to adjust the policy rate, those changes "can be expected to be small."
That sounds like a central bank that thinks it could "stand pat," as it cites both reasons why it might have to cut, such as trade restrictions, or hike, for example, if energy prices spark a broader inflation.