Bank of Canada: Gradual tightening path into 2027 – NBC

National Bank of Canada's (NBC) Taylor Schleich and Ethan Currie reaffirm their Bank of Canada (BoC) rate call, arguing that despite stronger Canadian labour data and robust Q2 GDP, accumulated slack and data lags should delay tightening. They continue to see the first BoC rate hike in Q1:2027, later than OIS pricing but earlier than Bloomberg’s median forecast, and expect short-term GoC bonds to underperform U.S. Treasuries.

BoC liftoff pushed into early 2027

"With inflation near 3% and set to remain above target, one might argue a sustained economic rebound will prompt a BoC rate hike this year."

"Given the lags in data publication (e.g., Q3 GDP isn’t published until late November), it’s hard to see the conditions for lift-off being met in 2026."

"We therefore continue to view Q1:2027 as a more plausible starting point for BoC tightening."

"That’s a tad later than OIS markets imply but well before Bloomberg’s median forecast, which sees the BoC sidelined until H2:2027."

"If we’re right, short-term GoC bonds are poised to underperform U.S. Treasuries over the next year."