The Bank of Canada announced on Wednesday that it would keep its benchmark overnight interest rate unchanged at 2.25%, in line with market expectations. The central bank stated that as inflationary pressures ease, economic growth will strengthen in the second half of the year.
The bank forecast that the economy will grow at an annualized rate of 2.5% in the second quarter, following a period of stagnation in the first quarter due to turmoil in the Middle East and uncertainty over U.S. trade policy.
In his opening remarks, Governor Tiff Macklem said: "After a year of stagnation, Canada's economic growth appears to have resumed. While U.S. trade policy remains a headwind, consumers are showing resilience, and businesses are adapting." This marks his first more optimistic tone on the economic outlook this year.
The bank slightly raised its growth forecasts for 2027 and 2028, but lowered its 2026 growth projection from 1.2% in the April forecast to 0.7%, reflecting the weak performance at the start of this year.
Meanwhile, the bank revised its 2026 inflation forecast upward to 2.5% from 2.3% in April, but said inflation should remain near the midpoint of the 1%-3% target range over the next two years.
Earlier, all 36 economists surveyed by Reuters expected the central bank to hold steady, with most predicting no rate adjustment until July next year. Money market pricing suggests rates will remain unchanged for the remainder of this year.
Royce Mendes, Managing Director at Desjardins, wrote in a report: "We still believe the Bank of Canada will stay put for the rest of this year, but a significant change in oil prices or the outlook for U.S. trade could easily alter this view."
This marks the sixth consecutive time the central bank has held its key policy rate unchanged, following an aggressive easing cycle last year that brought rates to current levels in October.
Macklem omitted remarks he made in June, when he suggested that consecutive rate hikes might be necessary if inflation surges.