Bank of Canada maintains rate in July

Rates left unchanged for a sixth straight meeting: At its meeting on 15 July, the Bank of Canada held its target for the overnight rate at a four-year low of 2.25% for a sixth consecutive meeting, in line with market expectations.

Recovering GDP growth and soon-to-ease inflation motivate another hold: The Central Bank refrained from hiking as it expects inflation—which has been fanned by the Iran war-related energy crisis—to start gradually easing from July assuming no additional persistent shocks to energy prices. Moreover, the Bank noted that long-term inflation expectations remain well-anchored and core inflation stood near target in May. At the same time, the Bank of Canada also deemed a rate cut unnecessary: The economy has shown signs of improvement in Q2 after two consecutive contractions in the prior quarters, and there are still upside inflation risks related to tensions in the Middle East.

The Bank likely to stand pat in the remainder of 2026: Unlike the previous meeting when the Central Bank Governor mentioned scenarios for both monetary policy tightening and easing in his opening remarks, this time his speech lacked reference to possible future monetary policy movements. The majority of our panelists expect the Bank to remain on hold through year-end, while two see hikes and one a cut. The Bank of Canada’s next meeting is scheduled for 2 September.

Panelist insight: Scotiabank’s economists are one of the few panelists expecting rate hikes by year-end: “The recent decline in oil prices is a welcome development and should provide some relief, but we continue to see meaningful upside risks to the inflation outlook. Against this backdrop, the Bank of Canada is likely to remain cautious and lean against the risk of inflation reaccelerating. In our view, these risks warrant a gradual withdrawal of monetary policy stimulus, with the Bank beginning to raise rates twice toward the end of the year.” Meanwhile, TD Economics continues to expect the Bank to stay pat this year: “If the repeated closures and reopenings of the Strait of Hormuz were not having such real economic consequences, they would rival the FIFA World Cup for drama. The latest blockade has pushed oil prices roughly 10% higher, placing some upside risk to the BoC’s oil price assumption underpinning their forecast. With the economy still operating below capacity, and core inflation remaining close to target, we continue to expect the Bank of Canada to remain on hold through the balance of the year.”

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