National Bank of Canada's (NBC) analysts Taylor Schleich and Ethan Currie have reaffirmed their outlook for the Bank of Canada (BoC) policy path, projecting the first rate hike to occur in the first quarter of 2027. This forecast comes despite recent stronger Canadian labour data and robust second quarter GDP figures, with the analysts citing accumulated economic slack and delays in data publication as reasons for the later tightening timeline [1].
NBC notes that while inflation is currently near 3% and is expected to remain above the BoC's target, the lag in key economic data—such as the third quarter GDP, which will not be published until late November—makes it unlikely that the conditions for a rate hike will be met in 2026. As a result, they see Q1 2027 as a more plausible starting point for BoC tightening [1].
This projection is slightly later than what is implied by Overnight Index Swap (OIS) markets, but earlier than Bloomberg’s median forecast, which anticipates the BoC remaining on hold until the second half of 2027. NBC further expects that, if their forecast is correct, short-term Government of Canada (GoC) bonds are likely to underperform U.S. Treasuries over the next year [1].
CONCLUSION
NBC's analysis suggests that the Bank of Canada is unlikely to begin tightening monetary policy until early 2027, later than market pricing but ahead of some analyst forecasts. This outlook implies potential underperformance for short-term Canadian bonds relative to U.S. Treasuries in the coming year.