Capital Economics Forecasts Limited Bank of Canada Rate Hikes
Capital Economics predicts the Bank of Canada will raise interest rates by only 0.5 percentage points next year due to trade uncertainty and slowing immigration.
Economic research firm Capital Economics published a report on September 30, 2026, arguing that trade uncertainty and slowing immigration will limit the Bank of Canada's ability to raise interest rates next year. The firm forecasts the central bank will implement two quarter-point hikes, raising the benchmark rate from 2.25 per cent to 2.75 per cent. This projection is significantly lower than the 1.25 percentage point increase currently expected by financial markets.
The analysis identifies several downward economic pressures that should rein in inflation, including weak population growth and Section 338 tariffs imposed by U.S. President Donald Trump. Capital Economics noted that such a scenario would be a drag on household consumption and potentially stall the recovery in the housing market, though it might accelerate the decline of the unemployment rate.
The Bank of Canada has maintained steady rates since October 2025, influenced by a war in Iran and ongoing trade disputes with the United States. While the central bank remains prepared to raise rates if inflation spreads beyond gas prices, it is scheduled to release updated economic and inflation forecasts on October 28.
