BoC preview: Here's what to expect from this week's central bank decision

The Bank of Canada’s rate announcement on Wednesday comes against an uneasy backdrop of renewed trade tensions and conflict in the Middle East.

At the same time, a slowing economy and soggy housing market point to a prolonged pause, rather than a fresh tightening cycle.

Big-bank economists across Bay Street are broadly aligned that the overnight rate would be held at 2.25%, despite market pricing for another move later this year. Many also warned that the case for a hike has weakened as growth and employment data softened.

Core measures CPI‑median and CPI‑trim both slipped to 2.3%, while CPI excluding food and energy edged down to 2.0%.

Meanwhile, the economy shed 84,000 jobs and the unemployment rate rose to 6.7%, Statistics Canada reported, with losses concentrated in full‑time and private‑sector positions and driven by youth and core‑age men.

The setback followed a 25,000 decline in January and effectively erased most of last fall’s gains.

BMO chief economist Douglas Porter wrote that “the Bank should be considering cutting rates, not raising them, in this economic backdrop.“

He added that “with most measures of core inflation close to the Bank's two per cent target, policymakers can more readily look through the oil-driven spike that is surely coming to headline inflation in the next few months,” pointing to weak recent jobs data and uncertainty around the Canada–U.S.–Mexico Agreement.

Middle East tensions and inflation worries
A spike in energy prices after US and Israeli strikes on Iran threatened to push headline inflation higher. Porter expected inflation, which has appeared to be drifting back to two per cent, to “push back up” and potentially breach the three per cent upper band.

He added that a “soggy” housing market would act as a counterweight to renewed price pressures.

From CIBC, chief economist Avery Shenfeld said there is enough slack to prevent an oil shock from spilling into core prices if it proved short-lived, meaning the Bank could still view current rates as restraining inflation.

“The first quarter is off to a weak start, underscored by soft readings in most of the growth and employment data we have for the first month or two of the year,” he said, calling recent GDP performance “decidedly anemic” and questioning why markets are “pricing in almost two quarter-point hikes this year.”

Manwhile, Oxford Economics judged the hit to the Canadian economy – and by extension mortgage rates – would likely remain contained if the conflict stays short-lived.

In its latest view, the firm said it has only tweaked its forecast in response to the war.

“Our current baseline forecast assumes a short-lived conflict, where the war temporarily increases global energy prices and adds about 0.2ppts to Canada’s headline CPI inflation in Q2 & Q3 2026,” said Tony Stillo, director of Canada economics at Oxford Economics.

Big Six desks tilted toward a hold
CIBC’s latest outlook on 2026 frames housing as “broken” and argued that another hike remains “far off,” even as markets flirt with that scenario, with Shenfeld and Benjamin Tal emphasizing that weaker homebuilding and affordability strains are likely to cap demand rather than reignite a boom.

At RBC, senior economist Claire Fan said, "At this week’s meeting, we expect the BoC to recognize growing external uncertainty but continue to hold the overnight rate at its current, borderline accommodative level of 2.25%."

TD Economics struck a similar tone. “We expect higher energy costs will lift headline inflation close to 3% in the months ahead, but the effect on the Bank of Canada's core measures should be more modest,” Leslie Preston, managing director and senior economist said.

“The Bank of Canada's interest rate decision is coming up on Wednesday, and the Bank is universally expected to remain on pause.”

Scotiabank's Derek Holt also believed that, “The BoC will be more intensely focused upon forward-looking inflation risks... Assessing them will take time for a central bank that is likely to be in data watch mode for an extended period while doing nothing at least for several meetings.”

Source: Canadian Mortgage Professional