TD Sees Bank of Canada Hiking Rates If Inflation Expectations Rise

10:39 AM EDT, 03/18/2026 (MT Newswires) -- The Bank of Canada (BoC) held its policy rate at 2.25% on Wednesday, in line with market expectations, said TD.

The BoC highlighted the uncertainty coming from the energy shock, noted the bank. The emphasis on keeping inflation pressures from spilling over from energy to other categories was to be expected.

What matters in the coming months will be how the assessment and identification of those spillovers are communicated, stated TD.

The war in the Middle East is the dominant factor here, according to the bank. How long it disrupts supplies of energy products and other goods is the determinant of how big the associated inflationary impact will be.

The BoC is focused on the pass-through to core prices and any shifts to inflation expectations, pointed out TD. Given a domestic economic backdrop that has featured still-elevated unemployment, softening core inflation and growth risks "tilted to the downside," the bank expects the BoC to stay on the sidelines, for now.

However, uncertainty is high and the supply shock could easily escalate, broadening inflation beyond energy prices. In the event that both core inflation and inflation expectations drift higher, TD expects the BoC to be ready to respond.

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