Bank of Canada: Slack delays hikes despite crude shock – NBC

National Bank of Canada's Ethan Currie notes that while oil-driven inflation risks have increased, the Bank of Canada is likely to remain on hold in October as domestic slack and trade uncertainty continue to weigh on the economic outlook. Although markets have brought forward expectations for policy tightening, with OIS pricing around four BoC hikes by June 2026, Currie argues that the path may be somewhat overstated relative to underlying fundamentals. Policymakers remain focused on preventing second-round inflation effects, but the timing and pace of rate hikes will depend on how growth and inflation risks evolve.

Tightening pulled forward but still cautious

"In Canada, we’ve pulled tightening closer on our expected timeline, but still expect the BoC to be sidelined in October as economic momentum is threatened and slack remains."

"Since the March rates selloff, a tightening bias has lingered across most advanced economies, though unevenly. In Canada, slack and trade uncertainty have pushed expected hikes further out—aside from a brief reversal after Macklem’s hawkish September presser."

"Despite market volatility, policymakers have been consistent—a lingering supply shock threatens second-round effects on inflation. As such, CB pricing has been closely tied to crude (even if that relationship faded this summer for the Fed). ~300 bps of tightening from the Fed, BoC, ECB, and BoE over the next ~9 months is expected—slightly overextended for the Fed and BoC, in our view."

"For Banks yet to deliver a hike, the messaging is clear—inflation risks are paramount—and markets have appropriately priced in eventual action."

"Note: For example, OIS imply ~4 hikes from the BoC by Jun-26."

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