-- The Bank of Canada's decision to leave the policy rate at 2.25% on Wednesday came as no surprise, given the clouded outlook ahead, said CIBC.
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, noted the bank.
CIBC has reason to alter its call for the BoC to be on hold this year. Absent the Middle East conflict, persistent economic slack and downward pressure on core inflation might well have prompted an easing.
However, by the time oil prices have sufficiently eased inflation fears, the window for a rate reduction will likely have passed, the bank pointed out. CIBC's core inflation outlook is sufficiently benign to make a rate hike "unwise."
BMO is a few ticks faster than the BoC in its outlook for 2027 growth, enough to envisage a couple of quarter-point hikes next year as the output gap narrows, but that is contingent on seeing USMCA talks prevent further trade barriers and provide some small relief from existing sectoral duties imposed on Canada.
The Canadian dollar (CAD) was little changed after Wednesday's announcement, and futures markets showed little response in terms of rate expectations for the end of the year, according to CIBC.