Standard Chartered economist Dan Pan anticipates that the Bank of Canada (BoC) will maintain its policy rate at 2.25% and postpone a 25 basis point cut until December, citing a rebound in Q2 growth that lessens the urgency for immediate monetary easing [1]. The report identifies downside risks to growth stemming from recent US tariffs but also notes a high probability of trade de-escalation, which could mitigate these risks [1].
Despite the escalation in tariffs, policymakers are expected to wait for additional data to assess the impact of the new tariffs on both growth and inflation before making any policy changes [1]. The possibility of an 'insurance cut' next week is mentioned if the BoC seeks to shield the economy from potential tariff shocks, though this is not the base case [1].
Market expectations currently price in approximately 65 basis points of hikes by mid-2027, a level Standard Chartered considers excessive given the current economic outlook [1]. The report questions the validity of these market expectations, suggesting that the path for BoC policy may be less aggressive than currently anticipated [1].
CONCLUSION
Standard Chartered expects the Bank of Canada to hold rates steady at 2.25% and delay any rate cuts until December, despite trade-related risks. The market's pricing of future hikes is seen as overly aggressive, with the bank emphasizing the need for more data before any policy shift. Overall, the outlook remains cautious amid ongoing trade uncertainties.