TD Securities economists Robert Both and Emma Lawrence project the Bank of Canada will keep its overnight rate at 2.25 percent through the rest of 2026, delaying a return to their estimated neutral level of 2.75 percent until January and March 2027. The call runs counter to market pricing that has shifted toward more tightening after the central bank’s September meeting flagged greater concern over inflation risks.
The forecast in detail
TD’s outlook pencils in two quarter-point increases next year, the first in January and the second in March, lifting the policy rate by 50 basis points to what the firm considers neutral. The economists argue the Bank can afford patience because excess supply in the economy is still being absorbed, and there is not yet evidence that higher oil prices have broadened into underlying inflation.
Markets have moved the other way
Since the September policy decision, when the Bank signaled more worry about inflation risks, swaps and forwards have priced a steeper tightening path. TD’s view rests on the absence of pass-through from energy costs to core price pressures, and on a growth backdrop that looks more fragile than the market assumes.
Tariffs and deceleration
Section 338 tariffs took effect in August, and early data for July and August already show some deceleration. The economists say renewed trade uncertainty gives the Bank additional reason to look through oil-price spikes over the fourth quarter, even as the Canadian economy tries to sustain recent momentum.
Bangkok appearances ahead
Bank of Canada officials will make several public appearances at the IMF and IIF annual meetings in Bangkok, offering the next scheduled opportunity to test whether the patience TD expects is shared by the governing council.