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Market Expectations Around Canada Rate Hikes "Moderated Considerably" On U.S.-Iran Interim Peace Deal, Says National Bank

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Bank of Canada rate hike expectations have moderated considerably of late, driven largely by the interim peace deal between the United States and Iran, said National Bank of Canada on Tuesday, while noting the BoC remained patient in its rate decision last week.

"While policymakers left a 'rate hike scenario' on the table, that is/was likely to involve elevated and/or rising oil prices, which raises the risk of inflation pressures broadening," said National Bank.

"Of course, oil prices have moderated significantly, which then significantly moderates the risk of these hikes. We were already expecting the Bank to remain sidelined through the end of the year, and recent developments have only reinforced our call. Eventually, the Bank will be back to tightening but we expect that to be a 2027 story," it added.

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