The Bank of Canada is widely expected to leave its policy rate unchanged at 2.25 percent on Wednesday, marking its fifth consecutive hold, according to the report. The decision arrives as forecasts diverge sharply: Scotiabank projects 50 basis points of tightening in late 2026 and early 2027, while Desjardins argues the economy is experiencing a classic demand shortfall that may require looser conditions. Markets have trimmed their rate-hike expectations from roughly two and a half moves after the April meeting to about one and a half now, but many economists believe even that is excessive.

Scotiabank's Lone Call for 50 Basis Points in 2026

Scotiabank stands apart from the pack. Derek Holt of Scotiabank Capital Markets Economics defended the bank's forecast for tightening in the fourth quarter of 2026 and again in early 2027, which would bring the policy rate to 3 percent.. He stated that they have consistently called for a later tightening cycle, according to the source article. Most other major banks—Bank of Montreal, CIBC, and Toronto-Dominion—expect a hold through year-end.

Desjardins' Demand Shortfall Thesis vs. Market Pricing

Royce Mendes of Desjardins Group presented the opposite view, arguing that all indicators point to a demand shortfall, meaning the BoC no longer faces a tradeoff between high inflation and low growth and should instead prepare for further demand deterioration. The source notes that Mendes believes the market still overestimates the need for tightening, citing a soft labour market with net job losses year-to-date and anchored inflation expectations. bank of America economist Carlos Capistran also recommended fading market pricing on BoC hikes, saying the bar for hikes remains high.

Why the Bank of Canada's Communications Tone Is Under the Microscope

With no policy move expected, attention will centre on the central bank's statement and press conference. Mendes warned that the BoC has a history of misleading markets and should avoid repeating language about the possibility of consecutive rate increases, which he called a previous communications misstep, as reported. conversely, Bank of America sees a hawkish bias and risks of market repricing after the press conference. BMO's Benjamin Reitzes expects a more balanced tone this time, according to the report.

A Reminder: The Shift in Canadian Work Patterns as Rates Stay Put

Separate data in the source article show that the share of Canadians working outside the home rose to almost 79 percent in May, up from 77 percent in 2025 and 75 percent in 2022, while exclusive remote work dropped to 11 percent, down from nearly 19 percent in May 2022. these trends reflect a continued normalization of work patterns post-pandemic, though their direct impact on interest rate policy remains an open question .