Bank of Canada's Prolonged Pause to Persist, Balance of Risks More for Rate Cut Than Hike, Says UBS

12:49 PM EDT, 06/11/2026 (MT Newswires) -- The Bank of Canada held rates at 2.25% at Wednesday's policy meeting and kept the policy rate at the lower end of its estimated neutral range, 2.25%-3.25%, said UBS.

The communications were little changed, but the BoC did acknowledge more plainly the "policy dilemma" caused by weakening economic activity and rising inflation, writes the bank in a note to clients.

With the uncertain outlook, UBS predicts that the BoC will remain on hold this year.

The bank estimates it will get more color on the outlook expected by the BoC in the updated Monetary Policy Report at the next meeting, July 15.

In terms of the balance of risks, UBS thinks these could even be tilted toward cuts, not hikes, depending on how the economy shapes up with these headwinds. This is somewhat at odds with the roughly 28bps of hikes still priced in by markets through year-end.

Next year, the bank forecasts more momentum in the economy, which could tip the balance back towards hikes, but the key factor will be the conclusion of the USMCA trade deal review.

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