The Bank of Canada (BOC) held interest rates steady for a sixth consecutive meeting as policymakers see the economy rebounding and oil price-driven inflation fading.
(July 15): The Bank of Canada (BOC) held interest rates steady for a sixth consecutive meeting as policymakers see the economy rebounding and oil price-driven inflation fading.
Officials led by governor Tiff Macklem kept the policy rate at 2.25% on Wednesday, matching expectations of economists in a Bloomberg survey and traders in overnight swap markets.
“After a year of weakness, Canada’s economy is showing signs of improvement,” the bank said in its monetary policy report. “Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high.”
The bank said in its statement that the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target. “Governing Council will continue to assess the strength of the Canadian economy and the outlook for inflation, and is prepared to adjust monetary policy as needed,” it said.
In the past two rate decisions, Macklem had warned that “consecutive” rate hikes might be needed if the Middle East conflict continues and higher energy prices feed into broader inflation. He dropped this language in Wednesday’s opening remarks, along with a warning that there may be a need to cut if the US imposes major new trade restrictions.
The loonie traded steadily against the US dollar after the decision, little changed on the day around the C$1.4057 mark as of 10.23am in Ottawa. Canadian bonds extended small gains across the curve, with the two-year yield down about four basis points (bps) to 2.83%. Swaps traders continue to price some 20bps of tightening from the bank by December.
In the monetary policy report, the bank said it sees growth rising by 2.5% annualised in the second quarter and 1.5% in the third. And while weakness at the start of the year prompted officials to slash their 2026 growth forecast to 0.7%, policymakers boosted their forecasts for 2027 and 2028 to 1.8% each.
Headline inflation is seen averaging 2.5% in 2026, from 2.3% previously, and is forecast to return to the bank’s 2% target by early next year. Policymakers listed “higher oil prices, elevated gasoline refinery margins and a weaker Canadian dollar” as reasons for near-term strength in price pressures.
The bank’s forecasts show core inflation remaining subdued too, and officials pointed to a narrowing breadth of underlying price pressures as evidence that higher oil costs aren’t spilling over into the prices of other goods and services.
