‘Rinse and repeat’ is likely to be the order of the day for Bank of Canada rate-setters when they announce their latest monetary policy decision on Wednesday.
The Governing Council is expected to keep the target for the overnight rate unchanged at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20%.
The statement accompanying the BoC’s 15 July decision now looks almost prescient. Policymakers said the Canadian economy was showing signs of improvement, with growth picking up and inflation expected to ease gradually from its recent spike. However, they cautioned: “There are still important risks and uncertainties related to the war in the Middle East and US trade policy.”
Both risks have since intensified.
JPMorgan noted that the timing of the external shocks was particularly unfortunate given the improvement in domestic economic data and relatively well-behaved measures of underlying inflation.
“As a result, the Governing Council may place somewhat more emphasis on its commitment to price stability, particularly as the labour market has improved in recent months, and the market may read such language as somewhat hawkish,” said JPMorgan’s Michael Hanson.
Resilient Economy
Since the July decision, Canadian data have generally been firmer on activity and employment, while the inflation picture has been more mixed.
Energy prices have remained volatile over the past six weeks. At the time of writing, front-month Brent crude closed at USD 94.65 per barrel, up USD 4.16, or 4.6%, on the day.
Headline CPI accelerated to 3.0% y/y in July from 2.8% in June, driven predominantly by energy and travel costs.
TD Securities expects the statement to strike a more mixed tone on inflation. “However, we are still not seeing any upward pressure across the core CPI despite the upside surprise in July,” the bank said.
There has also been a clear improvement in economic activity, with the previously reported first-quarter contraction subsequently revised away.
Markets will receive the latest labour market report after Wednesday’s decision, but the previous release showed solid job creation. Employment rose by 75,000 in July, the unemployment rate edged down to 6.4%, and the employment rate increased to 60.9%.
Inflation Risks Return
The combination leaves the BoC facing a somewhat different balance of risks than it did in July.
Domestic activity and labour market conditions have strengthened, reducing any immediate case for easier policy. At the same time, underlying inflation has remained sufficiently contained to argue against an aggressive response to the latest increase in the headline CPI.
That should allow policymakers to maintain a broadly neutral stance while placing greater emphasis on inflation risks and the external backdrop.
Guidance in Focus.
The Canadian economy has been on firmer footing of late, while underlying inflation remains sufficiently contained for the Bank to stay on hold. Analysts broadly argue that the recent data therefore reinforce the BoC’s neutral stance rather than creating a compelling case for either a hike or a cut.
Market pricing currently implies no more than around a 30% probability of a rate move by year-end.
JPMorgan’s Hanson said some discussion of conditional policy stances was possible during the press conference, although he did not expect explicit forward guidance and cautioned against over-interpreting any such remarks.
“Given the continued risks to the outlook, we think market pricing for rate hikes by year-end remains premature,” he said.
Source: JPMorgan
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- Firmer growth, jobs strengthen domestic conditions
- Energy volatility keeps inflation risks elevated
- BoC expected to maintain neutral policy stance
- Rate decision due at 09:45 EST/ 13:45 GMT
- Press conference scheduled for 10:30 EST/14:30 GMT
By Harry Daniels
LiveSquawk News
@HarryDaniels71
19:00 GMT | 1 September 2026
‘Rinse and repeat’ is likely to be the order of the day for Bank of Canada rate-setters when they announce their latest monetary policy decision on Wednesday.
The Governing Council is expected to keep the target for the overnight rate unchanged at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20%.
The statement accompanying the BoC’s 15 July decision now looks almost prescient. Policymakers said the Canadian economy was showing signs of improvement, with growth picking up and inflation expected to ease gradually from its recent spike. However, they cautioned: “There are still important risks and uncertainties related to the war in the Middle East and US trade policy.”
Both risks have since intensified.
JPMorgan noted that the timing of the external shocks was particularly unfortunate given the improvement in domestic economic data and relatively well-behaved measures of underlying inflation.
“As a result, the Governing Council may place somewhat more emphasis on its commitment to price stability, particularly as the labour market has improved in recent months, and the market may read such language as somewhat hawkish,” said JPMorgan’s Michael Hanson.
Since the July decision, Canadian data have generally been firmer on activity and employment, while the inflation picture has been more mixed.
Energy prices have remained volatile over the past six weeks. At the time of writing, front-month Brent crude closed at USD 94.65 per barrel, up USD 4.16, or 4.6%, on the day.
Headline CPI accelerated to 3.0% y/y in July from 2.8% in June, driven predominantly by energy and travel costs.
TD Securities expects the statement to strike a more mixed tone on inflation. “However, we are still not seeing any upward pressure across the core CPI despite the upside surprise in July,” the bank said.
There has also been a clear improvement in economic activity, with the previously reported first-quarter contraction subsequently revised away.
Markets will receive the latest labour market report after Wednesday’s decision, but the previous release showed solid job creation. Employment rose by 75,000 in July, the unemployment rate edged down to 6.4%, and the employment rate increased to 60.9%.
The combination leaves the BoC facing a somewhat different balance of risks than it did in July.
Domestic activity and labour market conditions have strengthened, reducing any immediate case for easier policy. At the same time, underlying inflation has remained sufficiently contained to argue against an aggressive response to the latest increase in the headline CPI.
That should allow policymakers to maintain a broadly neutral stance while placing greater emphasis on inflation risks and the external backdrop.
The Canadian economy has been on firmer footing of late, while underlying inflation remains sufficiently contained for the Bank to stay on hold. Analysts broadly argue that the recent data therefore reinforce the BoC’s neutral stance rather than creating a compelling case for either a hike or a cut.
Market pricing currently implies no more than around a 30% probability of a rate move by year-end.
JPMorgan’s Hanson said some discussion of conditional policy stances was possible during the press conference, although he did not expect explicit forward guidance and cautioned against over-interpreting any such remarks.
“Given the continued risks to the outlook, we think market pricing for rate hikes by year-end remains premature,” he said.