Bank of Canada to return gradually to neutral: TD Securities

2.25% is TD Securities’ forecast for the Bank of Canada’s current rate decision. Led by Andrew Kelvin and Robert Both, the macro team does not share the market’s conviction that the BoC will raise rates in October. Instead, it projects 25bp increases in December and January, bringing the policy rate to the midpoint of the neutral range. The Bank would meanwhile monitor the breadth of inflation, growth data and the effects of new tariffs.

October: Hold Before December and January Rate Rises

"We do not share the market's conviction for an October rate hike given limited inflation breadth and uncertainty over the near-term outlook."

"Functionally, there is a trade-off between certainty and inflation. The Bank can wait for more data to confirm their forecast, at the cost of allowing incremental increases in underlying inflation."

"We would simply contend that near-term inflation pressures are contained enough for the Bank to wait and see another six weeks of data."

"We therefore look for the Bank of Canada to deliver a hold with a clear indication that rates will be moving higher in future meetings, contingent on a benign growth path."

"We do not see the urgency to hike in October, but we don't expect rates to remain at 2.25% for much longer. We are pulling forward the hikes in our forecast from Jan/Mar to Dec/Jan, which would allow the Bank to lean against the risk of broader inflation pressures while giving it some more clarity around the near-term growth outlook and impact of new 338 tariffs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)