The Bank of Canada (BoC) released its second-quarter Market Participants Survey yesterday, capturing how the economists and strategists who participate in Canadian financial markets see the economy shaping up. These market participants say inflation will remain above target, which could eventually lead to an interest rate hike from the BoC. Here's more from the report.

• The survey’s respondents expect the BoC to hold its policy interest rate steady at 2.25% through the rest of 2026, with the BoC's next move a 25-basis-point rate hike to 2.50% around the first quarter of 2027, rising further to 2.75% by late next year.
• Economic growth expectations cooled in this quarter’s survey. The median forecast for 2026 gross domestic product growth fell to 1.3%, down from the first quarter forecast of 1.6%. Respondents put the odds of a Canadian recession within six to 12 months at 25%.
• Inflation is expected to stay a touch above target. The survey forecast headline inflation to be 2.6% in 2026, then easing to 2.1% by the end of 2027.
• Trade tensions and the conflict in the Middle East pose downside risks to Canada’s economy, according to respondents. Almost all respondents put an increase in trade tensions as a major risk to Canada’s economy, followed by tighter financial conditions and geopolitical tensions.

The survey shows the BoC on hold for now, even as geopolitical shocks complicate the economic picture. Trade tensions are the top risk to economic growth, while easing them is seen as the biggest upside. For investors, the takeaway is that borrowing costs could likely stay put for a while yet, but the balance of risks could tilt either way depending on how trade and Middle East tensions evolve.

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