Deloitte downgrade reinforced expectations of a prolonged rate hold
Canada’s economy has already been sputtering when Deloitte’s spring outlook shaved its 2026 growth call to 1.2% from 1.5%.
Against soft domestic demand, trade frictions and a new Middle East war shock, the weaker profile pointed squarely to a Bank of Canada that stays in wait‑and‑see mode rather than rushing to cut or hike.
Dawn Desjardins, chief economist at Deloitte Canada, said the firm has “to revise down our forecast for 2026 … because of this layered impact.”
The downgrade reflected “not only the (CUSMA) review, which has been coming for quite a lot of time, but also the war in the Middle East and the impact this has had both on energy prices, but as well as on financial market volatility.”
Canadian growth at the start of 2026 turned out stronger than most economists have pencilled in. Statistics Canada’s latest figures showed real GDP edged up 0.1% in January, with an advance estimate pointing to a 0.2% gain in February.
Douglas Porter, chief economist at BMO, called it “a pleasant surprise, for a change,” noting that the economy appeared “in somewhat better shape than anticipated heading into the turmoil.”
In a new research briefing, Oxford Economics said the US–Israel war with Iran would push up prices and uncertainty in the coming months but is “unlikely to derail Canada's economy.”
Geopolitical shocks are reshaping Canada’s rate outlook.
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Desjardins said Canadians are likely to see “higher levels of inflation in the near term due to the rising energy prices.” Inflation fears surge as the International Energy Agency (IEA) warned that oil crisis will be 'much worse' in April.
Still, she added, inflation pressures would likely be contained because “in general, the economy is running at a lacklustre pace and labour conditions are soft.”
That mix, she said, is “going to allow the Bank of Canada to hold the policy rate at 2.25% throughout the volatile period.”
The Bank’s January summary of deliberations showed policymakers grappling with similar cross‑currents, calling it “unusually difficult to effectively assign weights and probabilities to the various risks surrounding the outlook.” It also stressed the need to “maintain optionality in setting monetary policy.”
The council judged the 2.25% policy rate to be on the stimulative side of neutral – a stance that mortgage lenders read as a plateau, not a pivot.
The Bank recently admitted that it would “need to rely on judgment more heavily than usual and take a risk management approach to monetary policy” as oil shock clouds mortgage outlook.
Market economists already leaned that way. “Canada's economy hit the brakes in Q4 and may have slipped into reverse,” Tony Stillo of Oxford Economics, said.
He added: “We don’t think it will change the Governing Council's view that interest rates are at an appropriate level.”
Oxford expects the Bank to stay on hold through 2026, nudging rates back toward a 2.75% neutral setting only in early 2027 if CUSMA talks ended well – and to cut further if the trade pact “falls apart entirely.”
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