The prospect of interest rate hikes from the Bank of Canada are now less likely in the face of escalating trade tensions, says National Bank Financial Inc. (NBF) — in fact, the bank’s next move may now be a rate cut.
In a new report, the firm’s economists said that the imposition of new U.S. tariffs intensifies downside economic risks, and alters the expected path for monetary policy.
“We already expected the Bank to hold through year-end, but the tariffs make near-term tightening even less likely,” it said — noting that the bank has resisted rate hikes in the face of elevated inflation, given “residual economic slack.”
Now, if the trade conflict deepens, the bank’s next move may be a cut, the report said, “with the timing dependent on the evolution of economic and inflation data.”
“The problem is that diagnosing any damage will take time, especially if fiscal policy can temporarily prop up impacted industries,” the report said.
Ultimately, whether the next move is a hike or a cut, “it is difficult to envision the Bank’s next move coming before early 2027,” NBF said.