The economic fallout from events in the Middle East is developing broadly in line with our baseline scenario, leaving WTI on track to average $80/barrel in the second half of the year. The reduced risk of second-round effects, combined with an economy set to grow by less than 1% this year amid the ongoing US tariff shock, should mean the Bank of Canada is comfortable holding interest rates at the lower end of its neutral range estimate in 2026. The Bank is likely to begin normalising policy next year, as clarity on CUSMA improves and activity picks up.
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