TD Doesn't See Conditions for Bank of Canada to Tighten Rates This Year

07:26 AM EDT, 03/16/2026 (MT Newswires) -- The recent jump in oil prices won't show up "meaningfully" in Canada's trade balance until the March data, according to TD Economics.

But even with limited information available, net trade is likely to subtract from Q1 2026 real gross domestic product growth, said the bank. If elevated oil prices persist, the risk is that cost-push inflation begins to spread beyond energy and inflation expectations start to rise, it added.

Deputy Governor Sharon Kozicki outlined how the Bank of Canada might respond to supply shocks in a speech a couple of weeks ago, noted TD.

TD said the size and persistence of the shock, coupled with the current state of the economy, will be the key determinants of the BoC's policy choices going forward. It's the persistence of the oil shock that is a key uncertainty right now, TD added.

As for the current state of the economy, TD said Canada's broader macro backdrop remains soft. With no boom in GDP on the horizon, the bank doesn't see the conditions required for tightening this year, in contrast to the slight odds markets are currently placing on a hike.

TD predicts the Bank of Canada to stay on hold on Wednesday, and continue to assess the impacts of the ongoing disruption in the Strait of Hormuz.

A view of Canada's labor market immediately before the oil shock came from Friday's Labour Force Survey (LFS), noted TD. Contrary to expectations for a rebound, February doubled down on January's weakness with employment falling 84,000, adding to the 25,000 decline the month before, moving the three-month trend back into negative territory.

TD said the details were also disappointing. Losses were seen in full-time and private sector jobs, with Statistics Canada noting that private sector employment was virtually unchanged from a year earlier. The labor force also continued to contract, although at a more modest pace than in January.

Despite an exodus from the labor force, the unemployment rate rose to 6.7%. All in all, the LFS was decidedly weaker than markets expected, although the direction of travel wasn't entirely surprising given the multiple challenges facing the Canadian economy, according to TD.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.