Canada: Bank of Canada holds rates in June
Latest bank decision: At its meeting on 10 June, the Bank of Canada held the target for the overnight rate at 2.25%, following 100 basis points of cuts last year.
Bank opts again for wait-and-see approach: The Bank likely wanted to judge the effect of the 275 basis points of interest rate cuts since mid-2024 before countenancing any further rate changes. Elevated international uncertainty linked to conflict in the Middle East and future U.S. tariff policy was another reason to stay on hold. A combination of an economy that is expected to expand moderately going forward plus inflation within the Bank’s 1.0–3.0% target range gave the Bank the leeway to stay put.
Monetary policy likely to be unchanged ahead: Our Consensus is for rates to be broadly unchanged from now to end-2026, though one panelist sees a cut and a few see hikes. Much will depend on future changes in U.S. trade policy and their impact on Canadian GDP and inflation, as well as how conflict in the Middle East affects energy prices ahead.
Panelist insight: On the outlook, Desjardins’ Randall Bartlett said:
“The Bank highlighted broad weakness in the Canadian economy and shares our view that the economy remains in excess supply. If the US significantly increases tariffs on Canada, it may need to support growth. Given the two-sided risks to the inflation outlook, the Bank of Canada appears comfortable leaving rates on hold for now. We continue to expect the policy rate to remain unchanged until 2027.”