TD Securities strategists note the Bank of Canada’s (BoC) April Summary of Deliberations balanced US trade risks with inflation concerns. While the Bank acknowledged improved sentiment and resilience to USMCA (United States-Mexico-Canada Agreement) uncertainty, it highlighted upside risks to inflation and potential loosening of expectations. They interpret this as a mildly hawkish message and expects the Bank to hold rates through 2026, with hikes starting in 27Q1.

BoC seen on extended policy hold

"The Bank of Canada's Summary of Deliberations from April dug into both sides of their recent guidance, with the minutes noting that the Bank "needed to prepare for adverse outcomes" on US trade talks, while at the same time cautioning the inflation backdrop could change quickly and "monetary policy might need to respond to guard against the risk that inflation broadens and becomes more persistent"."

"Reading through the rest of the document, the Bank did undercut its focus on USMCA risks by noting improved sentiment in the Q1 BOS and ongoing resilience to trade uncertainty."

"The Bank also struck a more alarmed tone on potential loosening of inflation expectations, noting these can shift more quickly after the pandemic experience."

"The end result was a mildly hawkish message with more emphasis on upside risks to inflation and a more cursory acknowledgment of ongoing risks from USMCA renewal."

"We look for the Bank to stay on hold on through 2026 with rate hikes in 27Q1."

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