BoC's Next Move Is a Hike but the Wait Could Be Long, National Bank Says

08:16 AM EST, 12/03/2025 (MT Newswires) -- Five weeks ago, the Bank of Canada effectively declared its easing cycle was over, said National Bank of Canada.

To the BoC, the policy rate is "at about the right level" to keep inflation on target and help the economy through a "structural adjustment."

At the time, there was skepticism that the BoC's job was done, and to some extent, there still is, noted the bank. However, the BoC's stance looks more credible after a trio of strong jobs, inflation and gross domestic product reports.

If this is truly as low as Canada's central bank will go, the next rate change looks to be a hike, stated National Bank. As to how long investors might have to wait, the bank pointed out that more recent history suggests it'll be a while.

It took nearly two years to tighten following both the COVID-19 easing cycle and the "mini" one in 2015. Investors see a similar pattern unfolding this time, with the first full hike not priced in until mid-2027.

The bank added that those looking further back in history may draw a different conclusion: following the Global Financial Crisis, the BoC held at the zero lower bound for only 13 months before it began tightening.

Following the four preceding easing cycles, policymakers never stood sidelined for more than seven months. No two episodes are the same, but if one were to construct an "average" hold period, it would span a little less than a year, wrote National Bank.

Projected onto the present, it would imply the BoC could be tightening next fall. That may not be National Bank's base case, but it could materialize if inflation pressures fail to abate and the recent pace of GDP growth and hiring is sustained.

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