Manulife's revised forecast puts two consecutive Bank of Canada hikes firmly on the radar
A senior macro strategist at Manulife Financial has reversed the firm's long-held forecast that the Bank of Canada (BoC) would sit on the sidelines through 2026, now calling for two consecutive overnight rate increases at this autumn's remaining policy meetings.
Dominique Lapointe, macro strategist at Manulife Financial in Montréal, announced the shift in a report to investors, departing from the firm's previous base case that rate hikes would not arrive until mid-2027.
The catalyst is blunt: "Inflation dynamics are changing." Core inflation measures, Lapointe wrote, have grown close to 3% month-over-month annualized for two consecutive months.
The Bank of Canada has held its overnight rate at 2.25% since October 2025 through six consecutive holds.
The October 28 and December 9 decisions, the last two scheduled meetings of 2026, are now Manulife's target window for the first tightening cycle in nearly three years.
The case against further patience
Lapointe's argument pivots on the prolonged conflict in the Middle East. While recent core inflation gains have not been directly tied to Iranian supply-chain disruptions, the duration of the conflict raises the probability that second-round price effects will filter through to core goods — the kind of sustained pressure BoC Governor Tiff Macklem has explicitly said would prompt a policy response.
In a speech in Halifax, Nova Scotia, Macklem laid out the competing forces facing policymakers. Energy prices tied to the Middle East conflict have kept Canada's headline inflation above the Bank's 1%–3% target range for three consecutive months, while new US tariffs threaten to suppress growth and erode confidence.
"Two things probably have to happen if you're too slow: One is, you're going to have to raise rates very quickly," he said.
"And secondly, you're probably going to end up having to raise them more than if you moved earlier because things will have gotten more out of hand."
Canada's limited appetite for further trade escalation with the United States strengthens that case, Lapointe argued, calling the low likelihood of additional tariff moves "likely to be reassuring" to the Governing Council.
With GDP rebounding sharply in the second quarter and tariff-related damage largely contained to specific sectors rather than the broader economy, the rationale for further restraint has eroded.
"Because monetary policy cannot target specific industries," he wrote, "the Governing Council is likely to conclude that trade tensions do not offset inflation risks in the near term and that slightly higher rates are required."
Derek Burleton of TD Bank Group shared his outlook at MortgageFest Canada, arguing that Canada is in a different position than the U.S. and may not need the rate increases currently expected by bond markets.https://t.co/ru2zU1Vn9t
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 24, 2026
A divided outlook for brokers
Manulife's call aligns with, though goes further than, the hawkish wing of Bay Street. Both Scotiabank and National Bank now project the overnight rate reaching 2.75% before December, making them the most aggressive among Canada's major financial institutions.
Scotiabank's head of capital markets economics Derek Holt described a "pressure cooker of developments" building in the second half of 2026 that could force the Bank's hand.
BMO Capital Markets chief economist Douglas Porter had previously described a 2026 BoC rate hike as a very long shot — acknowledging that inflation fears had "rekindled chatter" of tightening without revising his forecast.
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