By Paul Vieira
OTTAWA--Market participants appear undaunted by the risk of accelerated inflation from the Middle East conflict, and remain convinced the Bank of Canada won't budge on interest rates until next year, according to a survey the central bank published Monday.
A survey of 28 financial-market participants, conducted in late March, indicated they believe the first interest-rate increase from Canada's central bank occurs in March 2027. That does mark a move up in the timing relative to the previous quarterly survey, which suggested the Bank of Canada would be on hold until the second quarter of next year.
Meanwhile, the median from the results suggest market participants expect inflation to average 2.6% in 2026. Inflation rose 2.4% in March, and the Bank of Canada expects the consumer-price index to peak in April at around 3%. The central bank sets interest rates to achieve and maintain 2% inflation, or the midpoint in the 1% to 3% target range.
The Bank of Canada left its benchmark interest rate unchanged last month, at 2.25%, although Gov. Tiff Macklem said it is possible that rate increases would be required should energy prices stay elevated for an extended period. That would increase the risk of higher fuel costs spreading to other goods and services, which data suggest is not happening yet.
Statistics Canada issues CPI data for April next week, on May 19.
Fixed-income traders expect at least two quarter-point rate increases before the end of 2026, according to trading on the overnight-index swap market. A poor jobs report for April has prompted some economists to dismiss the chatter around rate increases, arguing that labor-market conditions are deteriorating and economic slack is increasing.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
05-11-26 1123ET
