Bank of Canada's Current Policy Rate May Be Too High, Not Stimulative, Rosenberg Research Says

The Bank of Canada reaffirmed its 2.25%-3.25% neutral policy rate range in April, but Rosenberg Research said it believes the neutral rate is likely around 50 basis points lower. With growth subdued, labor market slack persisting, wage pressures contained and underlying inflation close to the BoC's 2% target as oil prices normalize, a rate hike before year-end would risk overtightening, wrote Rosenberg Research Thursday. "Even though the BoC's policy rate, at 2.25%, is at the lower end of the current neutral range, it is not as stimulative as it seems to be," wrote David Watt in the Rosenberg note. "In fact, it might be too high." Three structural developments support the case for a lower neutral rate, said Rosenberg. First, slower population and labor force growth are reducing potential growth. With immigration well below recent peaks, Canada recorded its first post-war II annual population decline in the first half of 2026. Second, weak productivity and soft business investment continue to constrain capital formation. Canada's machinery and equipment capital stock has been broadly flat since 2008, unlike the sustained growth seen in the U.S. Third, heightened trade.