By Erik Hertzberg
(Bloomberg) — The Bank of Canada 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 rate statement that current borrowing cost levels remain 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 U.S. imposes major new trade restrictions.
The loonie strengthened nearly 0.1% on the day to C$1.4051 per US dollar as of 12:28 p.m. in Ottawa. Canadian bonds extended gains across the curve, with the two-year yield down about four basis points to 2.83%. Swaps traders continue to price some 20 basis points of tightening from the bank by December.
In the monetary policy report, the bank said it sees growth rising by 2.5% annualized 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.
“Despite some volatility, recent data suggest that the economy is evolving broadly in line with the outlook in the April report,” the bank said, referencing its last batch of forecasts.
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.
Combined, the communications reaffirm that while uncertainty posed by tariffs and the war in the Middle East continue to add to risks, the bank is likely comfortable with its holding position.
“The recent run of firmer data has the BoC a bit more upbeat on the outlook, but they’re not convinced economic growth is poised to accelerate consistently yet, especially given the uneven pattern over the past 18 months,” Benjamin Reitzes, rates and macro strategist at Bank of Montreal, said in an email.
“Until there are clear signs that the output gap is closing on a consistent basis, it’s going to be challenging for the bank to turn more hawkish.”
The tail risks to the outlook are likely smaller, with improving growth and lower oil prices, but they remain and uncertain is still elevated, said Charles St-Arnaud, chief economist at Servus Credit Union.
“The bank is in no hurry to change its policy rate. With this in mind, we remain comfortable with our view that the central bank will stay on hold for the rest of the year.”
Inflation risks
The bank said a main upside risk to inflation is potential price pressures from businesses passing on higher input costs to consumers.
It also raised concerns about the possibility that its estimates of productivity could be “weaker than assumed,” which would imply a smaller output gap and more inflationary pressure.
The bank listed a potential tightening of global financial conditions and weaker-than-expected recovery in domestic economic growth as downside risks to the inflation outlook.
They assume Brent to fall to $70 a barrel by the end of 2027, based on the July 9 futures curve and slightly lower than their April forecast. Policymakers also boosted their outlook for exports, in part due to higher “energy-related activity.”
The bank didn’t provide its interest rate decision on an embargoed basis to media outlets because of a planned protest in support of striking security guards.
–With assistance from Mario Baker Ramirez and Nojoud Al Mallees.
©2026 Bloomberg L.P.
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Last modified: July 15, 2026
