CIBC Says Unlikely Bank of Canada to Hike Before, More Aggressively Than Federal Reserve

11:57 AM EDT, 05/20/2026 (MT Newswires) -- CIBC said its current rate forecast has both the Bank of Canada and the Federal Reserve on hold for an extended period, although it has penciled in a 25bps rate cut for the Fed in December conditional on an early end to the Iran war.

The BoC's own language suggests that it won't be looking to hike rates this year in any scenario that sees the pressure from oil prices abating in the second half of the year on a resumption of shipments through the Strait of Hormuz, writes the bank in a note to clients.

However, with that geopolitical outcome by no means certain, investors will put some weight on a scenario in which a more protracted conflict sees triple-digit crude prices extending from here to the end of the year, stated CIBC.

The bank's analysis suggest that the United States would be more at risk of a broader inflationary spiral than Canada in that scenario, making it unlikely that the BoC would be hiking first and more aggressively than the Fed.

Further afield, things could look a bit different, pointed out CIBC. A very extended rise in crude prices might be more of a positive for the Canadian economy than a negative, if it triggered an acceleration in energy-sector capital spending.

Or, in the bank's base case with a return to US$75/barrel oil prices, CIBC could see the BoC nudging interest rates up to 2.75% by the end of 2027 if a favorable outcome in trade talks reduces the drag on exports and business capital spending and begins to lower unemployment.

However, for this year at least, the bar to get Canada's central bank into a tightening stance is higher than the market thinks, at least relative to what the case would be for the Fed, according to CIBC.

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