The Bank of Canada held its key interest rate steady for the sixth consecutive time on Wednesday, a decision that a veteran money manager said was expected given the central bank’s penchant for waiting things out during times of uncertainty.
“I think (the Bank of Canada is) looking for underlying trends and they’re very hard to find right now,” Ed Devlin, founder of Devlin Capital, told BNN Bloomberg following the bank’s decision on Wednesday.
Devlin said the bank’s economic forecasting remains challenged given the volatility surrounding Canada’s trade relationship with the U.S., the war in Iran, underlying inflation concerns and a number of other economic and geopolitical factors.
The bank’s new monetary policy report, also released Wednesday, says it expects the Canadian economy to improve in the months ahead after a year-and-a-half of lackluster growth. However, the bank reiterated that persistent uncertainty threatens its outlook.
“They are all point estimates that the bank has put out, and I think there’s tremendous volatility around these point estimates,” Devlin said.
“There’s a lot of real uncertainty here and I think the Bank of Canada is just trying to keep their powder dry and react to whether we get an upside or a downside surprise.”
Bank ‘ready to move’
Devlin said that given the weakness in Canada’s economy, the bank did well to lower rates at the pace it did prior to the collection of holds at its most recent policy decisions.
“I think the bank’s done a good job getting rates down to (2.25 per cent) in pretty short order, which has provided stimulus,” he said.
“The real question is do we need more? Or is persistent energy and food inflation going to leak into the core inflation and make inflation expectations unanchored? I think if that’s the case, especially given the recent bout of high inflation after the pandemic, I don’t think they want to see that at all.”
Devlin said the bank is continuing to weigh all these factors and more before making a decision to come off the sidelines to either raise or lower rates in future decisions.
“I think they’re ready to move in either direction, and they’re just waiting for the trends in the data so they can move if they have to,” he said.
Oil prices and inflation
In May, headline inflation jumped above three per cent for the first time in more than two years, Statistics Canada reported last month, mainly due to increased gasoline prices triggered by the war in Iran.
While experts at the time said the data didn’t signal a return to elevated broad-based inflation, Bank of Canada governor Tiff Macklem said in prepared remarks Wednesday that the longer the conflict drags on, the more likely it is that inflation concerns spread to other parts of the economy.
“We’ve been looking through the direct effects of higher oil prices on inflation, but the longer they remain elevated, the bigger the risk they spill over to other goods and services,” Macklem said.
“As we have said before, we will not let higher oil prices become persistent inflation.”
Canada’s uncertain trade and economic relationship with the U.S. also continues to weigh on the economy, Devlin noted, as Ottawa and Washington have yet to strike a new trade deal after months of on-and-off negotiations.
With that in mind, Devlin said he sees “no change in policy” from the Bank of Canada for the rest of 2026.
“The market right now has one rate hike priced into Canada this year,” he said. “I would bet against that, I think they’ll probably stay unchanged.”
