OTTAWA
Canadian Trade Minister Mary Ng said she expects a comprehensive economic partnership agreement with India to close by year-end, aiming to reduce tariffs and boost investment between the two nations.
Bilateral trade totaled $12 billion in 2023. A finalized deal could add hundreds of millions annually to Canadian GDP, with economic models suggesting new export opportunities in agriculture and energy. The removal of trade barriers would lower import costs for Canadian consumers, particularly in goods currently subject to high tariffs.
For bond markets, the inflation calculus matters most. Lower import costs offer a marginal disinflationary impulse over time, easing pressure on Bank of Canada policy makers. Diversified supply chains reduce reliance on single markets, offering stability against geopolitical shocks. Both dynamics could influence the central bank's assessment of future inflation trajectories.
On the yield curve front, bond markets would likely price in a modestly improved long-term growth outlook for Canada, anticipating stronger fiscal revenues. That would manifest as a modest steepening of the Canadian curve, with longer-dated yields rising more than shorter-dated ones as growth expectations firm. Fixed-income investors would monitor for any shift in the Bank of Canada's policy stance, especially if sustained growth leads to tighter monetary conditions.
Increased foreign direct investment could strengthen the Canadian dollar against major currencies, reflecting improved economic fundamentals and capital inflows. From a central bank perspective, a trade deal provides a positive supply-side shock, potentially allowing for greater policy flexibility. The Bank of Canada would also weigh any short-term inflationary impacts from increased demand against longer-term disinflationary effects of efficiency gains.
Negotiations are ongoing, with officials focusing on intellectual property, services, investment and digital trade. The next formal round of talks is expected in early October.
