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Bank of Canada seen holding overnight rate at 2.25% through 2027

Rabobank strategists point to strong Q2 GDP growth and energy and trade-related CPI pressures as the mix keeping policy at its terminal level.

Reported · Written up by our desk · Central Banks

Rabobank strategists expect the Bank of Canada to keep its overnight rate at 2.25% at its September 2 meeting and to maintain that level through 2027, even as markets are pricing roughly 17 basis points of tightening by year-end.

In their view, the backdrop includes strong Q2 GDP growth supported by exports, but also escalating US Canada trade tensions and elevated headline CPI inflation driven by energy and trade-related risks.

They argue that, despite the Bank of Canada’s emphasis on preventing inflation from spreading into broader price pressures, underlying economic conditions remain subdued by an ongoing productivity crisis, leaving policymakers constrained.

Rabobank also says monetary policy is already at its terminal rate, implying the current settings are unlikely to change in the near to medium term.

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