RBC economists warn rate cuts are over, with the BoC now more likely to hike than ease
Canada may be closer to the end of its easing cycle than many observers expected. Royal Bank of Canada (RBC) economists are forecasting that the Bank of Canada (BoC) will hold its policy rate steady in the near term before beginning a gradual hiking cycle in early 2027.
"Incoming data will matter for the October decision, with communications from the BoC continuing to suggest it will be a close call," said RBC assistant chief economist Nathan Janzen and senior economist Claire Fan.
A flat real gross domestic product (GDP) reading in July, following monthly gains averaging 0.4% in each of April, May, and June, has introduced downside risk to RBC's third-quarter tracking estimate of 1.8% annualized growth. Even so, the economists stop well short of calling for additional cuts.
Fan previously put it plainly: "We still don't see the Bank of Canada cutting the overnight rate. The next move is more likely to be a hike although we don't expect that until 2027."
Why further easing looks unlikely
Two factors underpin RBC's position. The first is structural: the US decision to impose 50% tariffs on 5% of Canadian imports on August 22, 2025, represents a supply-side shock.
The BoC has itself signalled that these tariffs could halve Q4 GDP growth to below 1% annualized, but the central bank views targeted federal fiscal support as a more effective instrument than a broad rate adjustment for disruptions of this nature.
Bank of Canada governor Tiff Macklem issued a stark warning Monday that a fresh round of US tariffs and elevated global oil prices risk undoing Canada's hard-won economic recovery.https://t.co/k19n8NXNPd
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 22, 2026
The second factor is inflation. Elevated global oil prices and historically wide refinery margins have kept policymakers alert to any broadening in price pressures. That vigilance limits the BoC's appetite to ease further, even as growth risk builds.
What brokers should be watching
Consumer data heading into Q4 tells a more resilient story than the July GDP figure suggests.
Hours worked climbed 0.6% in August, job openings held firm through mid-September, and advance retail sales data registered a 1.3% monthly gain.
RBC's own card transaction tracking corroborates that picture.
For brokers with clients approaching renewal, the implications are tangible. If RBC's base case holds, the window of stable rates may be finite — and fixed versus variable conversations will need to account for a hiking cycle, not an easing one.
The August preliminary GDP release is expected to anchor the October decision.
RBC economists tracking Canada's economy toward the next rate cycle will be a critical read as data comes in ahead of year-end.
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