Markets broadly expect the BOC to keep the overnight rate at 2.25%. The National
Bank of Canada expects no change to BOC balance-sheet policy at the meeting.
Since the June decision, market pricing has reduced the probability of further
hikes this year; the bank expects the market-implied rate path to show little
change after Wednesday’s decision but says a modest tightening bias could remain
in coming months. Given ongoing uncertainty from the Iran conflict, the BOC is
unlikely to signal that inflation risks have materially eased. Governor Macklem
may reiterate that further hikes would be required if inflation risks intensify,
and that cuts could be needed if trade risks materialize; the bank notes the
odds of both outcomes have fallen versus earlier. The National Bank expects the
BOC to lift its headline inflation profile while only slightly adjusting core
inflation forecasts; weaker-than-expected Q1 activity means the 2026 GDP growth
forecast could be cut sharply. Despite a strong Q2 rebound partially offsetting
prior weakness, the BOC is expected to keep its output-gap estimate around -1.5%
to -0.5% of GDP.
