Bank of Canada Holds Rate at 2.25%

The Bank of Canada maintained the target for its overnight rate unchanged at 2.25% in its September 2026 decision, as expected by markets, but flagged stronger upside risks to inflation. The Governing Council noted that the Canadian economy underwent a broad recovery in the second quarter, underscoring some resilience to adverse economic conditions since the outbreak of war in the Middle East lifted energy prices and long-maturity yields domestically. On top of that, flagged upside inflation risks from the continuation of the war and the reintroduction of aggressive tariffs on Canadian exports to the United States. Still, the BoC noted that underlying inflation has so far maintained its target level despite the shock in energy prices since March. Despite stressing higher inflation risks, the bank reiterated that the uncertain outlook prevents any clear signals on monetary policy this year.

The Bank of Canada left the target for its overnight rate unchanged at 2.25% for a sixth consecutive decision in July 2026, in light with expectations. The Governing Council noted that Canada's economy has shows signs of improvement in the last months despite being dented by the immediate impact of soaring energy prices from the Middle East conflict. The Council added that it is unlikely that economic growth will be remain at its elevated pace for long, but noted that the sources of expansion are broadening. New projections have Canada's GDP growth slowing to 2.75% this year, before rebounding to 3.25% next year. In the meantime, inflation is also due to slow as the pressure from the energy shock eases, although geopolitical uncertainty holds the unpredictable outlook, warranting no change in monetary conditions. The BoC's base case sees CPI inflation to stay above the 3% threshold in June and ease in the coming months, before converging to 2% by next year.

The Bank of Canada left the target for its benchmark overnight rate steady at 2.25% for a fifth consecutive meeting in June 2026, in line with expectations. Policymakers said that so far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices. However, the central bank is continuing to look through the war’s near-term impact on inflation and will not let higher energy prices become persistent inflation, standing ready to respond as needed. Inflation in Canada rose to 2.8% in April mostly due to energy prices, but the core rate moved down to 2.1%. The central bank expects inflation to hover around 3% before gradually easing towards the 2% target. Policymakers also noted that economic activity in Canada has been weak and uncertainty about US trade policy persists. The Bank Rate and the deposit rate were also kept at 2.5% and 2.20% respectively.