RBC Sees Bank of Canada Likely to Hold Rates Wednesday, With August CPI Key to Call

06:23 AM EDT, 09/15/2025 (MT Newswires) -- Royal Bank of Canada said it expects Wednesday's Bank of Canada policy decision to be a closer call than the U.S. Federal Reserve's move the same day and tighter than the market's current high likelihood of a cut.

The central bank is weighing signs of a softening Canadian economy, higher unemployment and lower exports, against persistent inflation pressures, RBC said. The bank expects the BoC to narrowly opt to hold rates, depending in part on August consumer price index data due Tuesday.

The BoC will release its policy statement at 9:45 a.m. ET Wednesday.

RBC noted that economic data have weakened but not significantly more than the BoC anticipated.

Second-quarter gross domestic product fell 1.6%, in line with the 1.5% decline in the July Monetary Policy Report. Early third-quarter data suggest the drop, driven mainly by weaker net trade and concentrated in manufacturing, is unlikely to be repeated, with export volumes stabilizing and preliminary July manufacturing sales up 1.8% from June.

Trade disruptions continue to weigh on some sectors, and labor markets have softened, but job losses remain concentrated in heavily trade-exposed industries, RBC said. The bank added that targeted fiscal spending by federal and provincial governments is better suited than across-the-board interest-rate cuts to support those areas.

Federal and provincial spending plans are already ramping up, and further rate cuts could fuel inflation in sectors where activity remains resilient, RBC said. Consumer spending grew sharply in the second quarter despite the GDP contraction, and housing markets have shown renewed strength.

RBC expects August headline CPI growth to edge up to 2.1% year over year from 1.7% in July, with core prices excluding food and energy rising to 2.8%. The BoC's preferred median and trim core measures are projected to stay near 3%, the top of the bank's inflation target range, extending summer trends.

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