TD Securities strategists expect the Bank of Canada (BoC) to keep its policy rate at 2.25%, with a cautious statement in the April decision. The April Monetary Policy Report (MPR) is seen upgrading headline inflation forecasts on higher energy prices, while core revisions remain modest. Strategists anticipates a higher neutral rate range and notes the Bank will stress two-sided growth risks from elevated Oil prices.

BoC to hold with two sided risks

“We look for the Bank of Canada to hold rates at 2.25% as the policy statement strikes another cautious tone. The April MPR will provide the first update to the Bank’s outlook since the start of the Iranian conflict, with higher energy prices expected to drive a sharp upgrade to the Bank’s inflation forecast, with more modest revisions to core inflation.”

“The MPR will also give the BoC’s latest assumptions for potential output and its neutral rate, where TD looks for its neutral estimate to rise by 25bps to a 2.50-3.50% range. Crucially, we look for the Bank to note “two-sided” risks to growth from higher oil prices, and maintain its pledge to look through near-term inflation impacts.”

“With a lack of any material change from the 2025 budget, the Spring Economic Update didn’t make too big of a splash in Canadian rates as levels remain unchanged and Canada continues to underperform versus the US. We maintain our base case on the BoC holding throughout 2026 and remain constructive on fixed income heading into June 1st.”

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