Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials HomeNewsEconomyOttawa's budget watchdog predicts Bank of Canada will hike interest rate to 2.75% in 2027Parliamentary Budget Officer expects central bank to hold its fire through this yearLast updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.The Bank of Canada next decides on interest rates June 10. Photo by James Park/BloombergOttawa’s budget watchdog’s new economic outlook projects the Bank of Canada will hold its key interest rate steady through 2026 before gradually raising it to 2.75 per cent by the end of next year.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorThe Office of the Parliamentary Budget Officer‘s report published Thursday said it expects the central bank to hold fire through 2026 as the economy continues to operate “below its productive capacity” and inflation stays elevated due to higher energy prices.As supply disruptions from the Iran war ease and inflation returns to the two per cent target, the bank will gradually raise interest rates from 2.25 per cent to 2.5 per cent by mid-2027 and 2.75 per cent by the end of the year, said the PBO.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againHowever, if energy prices remain high for a sustained period of time, the Bank of Canada may take a “tighter monetary policy stance” to manage inflationary pressures, the outlook said. Bank governor Tiff Macklem made similar comments before a parliamentary committee in April.“The economic outlook has weakened somewhat compared to our September projection due to enduring trade frictions and higher uncertainty,” Thursday’s economic outlook read.“We expect growth to remain subdued through 2026, before gradually recovering as net exports begin to rebound from depressed levels.“Persistent uncertainty is expected to continue weighing on business investment and household spending, and slower population growth is reducing potential output growth in the short term.”The PBO report comes the week before the Bank of Canada is set to announce its latest decision on its interest rate. Soaring oil prices and the uncertainty surrounding U.S. tariffs were top of mind for the central bank’s governing council in April, with some members concerned about the impact on the economy.Despite this, economists expect the central bank to hold its key overnight rate at 2.25 per cent on June 10 for the fifth time in a row.“At this point, it’s too early to respond to the weakness in the economy with a rate cut, but the economy also doesn’t require any monetary tightening right now,” said Royce Mendes, head of macro strategy for Desjardins Group.Economists, however, are split on whether and when the bank will hike interest rates next year.CIBC’s most recent forecast expects the Bank of Canada to hold the interest rate through 2026 and most of 2027 before raising it to 2.75 per cent by September 2027.Desjardins Group economists predicts the first rate hike will come earlier, in the first quarter of 2027, and then rise to 2.75 per cent. Mendes said the economy should “return to full health” as Canadian and U.S. officials eventually strike a deal on the Canada-U.S.-Mexico Agreement (CUSMA) and the fiscal stimulus embedded in Budget 2025 starts to hit the economy.Mendes also forecast modest population growth next year, which will help drive economic growth.“For all of those reasons, we see the economy returning to full health, and the central bank can then normalize interest rates to 2.75 per cent,” he said in an interview.“We think that will happen in the second and third quarter of 2027, and that gets the central bank to a neutral interest rate, where you’re not stimulating the economy and you’re not restraining the economy.”Both Bank of Montreal and Toronto Dominion Bank expect the interest rate to remain at 2.25 per cent through 2026 and 2027.BMO economists Michael Gregory and Jennifer Lee said the weak economy and labour market should act as “inflation pressure sponges,” while there is still significant uncertainty ahead in trade negotiations with the United States.“We reckon the Bank’s current hold is going to last a long while,” they wrote.Mendes also said that CUSMA negotiations and geopolitical tensions remain volatile, and the economic outlook could change drastically if oil prices don’t come down and both countries don’t strike a trade deal.“If oil prices rise even higher and stay higher for a long time, that’s an upside risk to the inflation outlook, and that’ll matter for setting interest rates. On the downside, the biggest threat to the economy right now is CUSMA, especially if trade talks deteriorate and a suitable conclusion isn’t made,” he said. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.