- Governing Council holds its overnight rate at 2.25% - Growth broadens as tone turns upbeat - Inflation forecast rises, but outlook is steady - Analysts expect rates on hold through year-end
There was little nuance in Wednesday’s Bank of Canada rate announcement. In fact, there was little of material significance from the central bank -- intentionally so.
As widely expected, the BoC’s Governing Council kept interest rates unchanged, leaving the overnight rate at 2.25%, the Bank Rate at 2.5% and the deposit rate at 2.20%.
In the accompanying statement, policymakers said that despite growing signs of an economic recovery and inflation being projected to ease, there were still “important risks and uncertainties related to the war in the Middle East and US trade policy.”
The communiqué was moderately upbeat about the prospects for the Canadian economy. However, analysts noted that its forward guidance offered little indication of the likely direction of monetary policy.
Robert Both, a senior economist at TD Securities, noted that the guidance was revised to remove language addressing the risk of consecutive hikes if inflation broadened. “While this was interpreted as dovish, the bank also removed its reference to rate cuts if trade tensions worsen.”
The Governing Council also acknowledged a pickup in global activity, not only in the US but across other major economies.
Turning to the domestic economy, the BoC highlighted clear signs that growth had resumed in the second quarter, estimating an annualised expansion of 2.5%. “While this largely reflects the unwinding of temporary factors, sources of economic growth appear to be broadening,” policymakers added.
Updated staff projections
Source: Bank of Canada MPR
As part of its quarterly Monetary Policy Report, the BoC revised its economic forecasts for the next three years.
On growth, bank staff said the outlook was broadly unchanged. “After a weaker-than-expected start to 2026, GDP growth is projected to be slightly stronger in 2027 and 2028.”
On inflation, the BoC said near-term price growth had been slightly stronger than expected in April’s report but left the broader outlook largely unchanged. It attributed the near-term strength to higher oil prices, elevated petrol-refining margins and a weaker Canadian dollar.
TD Securities’ Both noted that the BoC raised its 2026 inflation forecast to 2.5% from 2.3%, including a 0.4 percentage-point upgrade to headline CPI in Q2. However, “revisions further out the projection period were limited by the little-changed assumption for crude oil prices.”
A balanced outlook to policy
At the accompanying press conference, Governor Tiff Macklem highlighted both the benefits and risks surrounding the BoC’s assessment of the economy and monetary policy.
The positives included stronger consumer and government spending, alongside a pickup in business investment. These were offset by a housing market that remains weak, albeit with signs of stabilisation, and a still-soft labour market.
Macklem added that although the Canada-US-Mexico Agreement was now subject to annual reviews, more businesses had reported finding ways to navigate the uncertainty.
Analysts also noted that Macklem reiterated the BoC would neither rush to raise rates in response to short-term inflation spikes nor cut because of trade concerns, instead maintaining a neutral policy stance for now.
“That’s consistent with our assessment that the risk of both scenarios has diminished over recent weeks/months,” National Bank of Canada’s Taylor Schleich said. “We agree that the current policy rate is appropriate and expect the bank to remain sidelined through the end of the year. We still see eventual tightening in the first half of 2027 as economic slack is gradually absorbed.”
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- Governing Council holds its overnight rate at 2.25%
- Growth broadens as tone turns upbeat
- Inflation forecast rises, but outlook is steady
- Analysts expect rates on hold through year-end
By Harry Daniels
LiveSquawk News
@HarryDaniels71
18:00 GMT | 1 July 2026
There was little nuance in Wednesday’s Bank of Canada rate announcement. In fact, there was little of material significance from the central bank -- intentionally so.
As widely expected, the BoC’s Governing Council kept interest rates unchanged, leaving the overnight rate at 2.25%, the Bank Rate at 2.5% and the deposit rate at 2.20%.
In the accompanying statement, policymakers said that despite growing signs of an economic recovery and inflation being projected to ease, there were still “important risks and uncertainties related to the war in the Middle East and US trade policy.”
The communiqué was moderately upbeat about the prospects for the Canadian economy. However, analysts noted that its forward guidance offered little indication of the likely direction of monetary policy.
Robert Both, a senior economist at TD Securities, noted that the guidance was revised to remove language addressing the risk of consecutive hikes if inflation broadened. “While this was interpreted as dovish, the bank also removed its reference to rate cuts if trade tensions worsen.”
The Governing Council also acknowledged a pickup in global activity, not only in the US but across other major economies.
Turning to the domestic economy, the BoC highlighted clear signs that growth had resumed in the second quarter, estimating an annualised expansion of 2.5%. “While this largely reflects the unwinding of temporary factors, sources of economic growth appear to be broadening,” policymakers added.
As part of its quarterly Monetary Policy Report, the BoC revised its economic forecasts for the next three years.
On growth, bank staff said the outlook was broadly unchanged. “After a weaker-than-expected start to 2026, GDP growth is projected to be slightly stronger in 2027 and 2028.”
On inflation, the BoC said near-term price growth had been slightly stronger than expected in April’s report but left the broader outlook largely unchanged. It attributed the near-term strength to higher oil prices, elevated petrol-refining margins and a weaker Canadian dollar.
TD Securities’ Both noted that the BoC raised its 2026 inflation forecast to 2.5% from 2.3%, including a 0.4 percentage-point upgrade to headline CPI in Q2. However, “revisions further out the projection period were limited by the little-changed assumption for crude oil prices.”
At the accompanying press conference, Governor Tiff Macklem highlighted both the benefits and risks surrounding the BoC’s assessment of the economy and monetary policy.
The positives included stronger consumer and government spending, alongside a pickup in business investment. These were offset by a housing market that remains weak, albeit with signs of stabilisation, and a still-soft labour market.
Macklem added that although the Canada-US-Mexico Agreement was now subject to annual reviews, more businesses had reported finding ways to navigate the uncertainty.
Analysts also noted that Macklem reiterated the BoC would neither rush to raise rates in response to short-term inflation spikes nor cut because of trade concerns, instead maintaining a neutral policy stance for now.
“That’s consistent with our assessment that the risk of both scenarios has diminished over recent weeks/months,” National Bank of Canada’s Taylor Schleich said. “We agree that the current policy rate is appropriate and expect the bank to remain sidelined through the end of the year. We still see eventual tightening in the first half of 2027 as economic slack is gradually absorbed.”