The National Bank of Canada's (NBC) analysts, Taylor Schleich and Ethan Currie, anticipate that the Bank of Canada (BoC) will maintain its overnight rate at 2.25%, marking the seventh consecutive hold, and will keep its current balance sheet policy unchanged [1]. This decision aligns with the expectations of both forecasters and OIS markets [1].
The analysts note that despite the ongoing escalation in U.S. trade policy and retaliatory tariffs, the impact on rate expectations has been relatively modest, with implied odds of a late-2026 hike remaining near 65% [1]. Investors appear to believe that a resolution to the Canada-U.S. trade conflict is likely, as near-term rate hikes are seen as incompatible with a prolonged trade war [1]. NBC's analysts share a cautiously optimistic outlook but argue that markets may still be overpricing the likelihood of near-term hikes, leaving risks skewed toward a Canadian Dollar-supportive rally in Government of Canada bonds versus U.S. Treasuries [1].
NBC does not expect a rate cut at this time, referencing the last cut in March when the policy rate was higher at 3% and the BoC was already in an easing cycle [1]. The analysts suggest that the BoC may emphasize its data-dependent approach and acknowledge monetary policy limitations in its upcoming communications [1]. Should the trade war intensify and the Canadian economy stall, a similar response and timeline to the previous cycle—where a six-month pause preceded a rate cut—could be possible [1].
CONCLUSION
The Bank of Canada is widely expected to keep its policy rate unchanged amid ongoing trade tensions with the U.S., with markets potentially overestimating the likelihood of near-term hikes. Analysts see risks tilted toward a Canadian Dollar-supportive bond rally and emphasize a cautious, data-dependent stance from the central bank.