After a year of cuts, Chhad Aul says the BoC is likely to step back next year, leaving growth up to other factors
Over the past three months there has been something of a torch passed in Canadian economic policy. After embarking on a rate cutting cycle that began in late 2024 and navigated the challenges and uncertainties of shifting US trade policy, the Bank of Canada (BoC) announced yesterday that it’s holding its interest rate steady at 2.25 per cent, a level which it views as likely supportive for growth and adequately restrictive to inflation.
Between the BoC’s last cut in October and its hold in December, parliament passed Prime Minister Carney’s first budget, which targets major capital investment as an avenue to growth. The proverbial torch of economic responsibility, therefore, seems to have been passed from monetary to fiscal policy.
Chhad Aul sees that shift in responsibility and believes the BoC will likely play much more of a wait and see role in 2026. The CIO and head of multi-asset solutions at SLGI Asset Management Inc., explained why the focus is now shifting to fiscal and trade policy and what advisors can do to unpack this changing landscape for their clients.
“If you had a single banner takeaway from this decision it would be that handoff to fiscal policy,” Aul says. “The timing around this works well, and it could come together as an example of where you don’t have coordinated fiscal and monetary policy, but you have both sides doing what’s necessary at the right times. There are plenty of risks in execution from here, but this could potentially come together quite well.”
The decision by the BoC to hold rates steady was expected going into the meeting, Aul notes, because of the surprising resilience in economic data published leading up to this. Unemployment has fallen in recent months, though he notes the BoC didn’t make much of that trend in their statement perhaps a signal that they believe the labour market will revert back to the mean. On the whole, though, he expects that this resilience will continue into 2026, with the overhanging question of how resilient Canada will be and for how long.
Should sentiment take a hit again due to the USMCA renegotiations, the execution of budget initiatives, or other macro factors there may be a wider shift away from that resilient narrative. He expects, however, that if some of the policies outlined in the budget do start to have an impact, that can help buoy sentiment and keep investors more bullish.
There is a degree to which circumstances have actually helped the Bank of Canada in 2025 as well. While the overhang of US tariffs was not ideal, the fact that Canada was targeted before the global announcements on liberation day initiated earlier cuts by the BoC which seem to have played out well so far. A secular decline in the US dollar has helped keep the Canadian dollar out of free-fall despite wider than normal policy divergence from the United States. Global oil prices have dropped, pulling headline CPI down. CUSMA, Aul notes, has kept the worst of US tariffs from derailing the whole Canadian economy, though sectoral tariffs have done damage.
Looking ahead to 2026, Aul is watching for two key factors to influence Canadian economic growth: CUSMA renegotiations and budget execution. If public and private investments in major projects and resource development can be executed efficiently and effectively, then that could be a positive signs for the Canadian economy. CUSMA, too, should put the overhang of US trade issues to bed and a positive outcome there could represent a turning point.
For advisors unpacking this shift in economic responsibility, Aul notes that the discussion should begin with global diversification in client portfolios. He notes that while the BoC may take a backseat next year, the US Fed is likely to cut more in 2026, which should be supportive for risk assets wherever they are domiciled. On the domestic front, Aul stresses just how many shocks the Canadian economy has been through in the past five years, while showing resilience through it all. He believes that global shifts and resilience in the face of US policy may come to support broader allocations in 2026.
“There’s been an interesting broadening out of some investment opportunities as well that advisors can focus on. And some of these themes are going to consider to play out into next year,” Aul says. “The US is likely still about those AI mega caps. In other markets, you're going to see other themes. In Canada precious metals stocks have pushed things along. In Europe, it's been things like defense stocks, that have pushed things higher. In emerging markets, in China, you can look at robotics as a theme. Those themes are likely to continue and that means a broadening of opportunities.”
