Bank of Canada keeps interest rate unchanged at 2.25%; Macklem says hikes still possible if oil prices spike

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07/15/26 12:30

What’s next?

- Sophia Bertuzzi

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• The next Bank of Canada interest rate announcement will be on Sept. 2, with many economists widely expecting the bank to remain on hold again.
• The next U.S. Federal Reserve interest rate decision will be announced on July 29, with markets expecting a hold after cooler-than-expected inflation data came out earlier this week. However, Chair Kevin Warsh’s hawkish tone has financial markets split on whether the Fed will hike in September.
• Statistics Canada will release CPI data July 20, likely giving policymakers a better picture of how volatile oil prices spread through to other goods over the month.
• The agency will also release official May GDP by industry data on July 31, giving economists more insight into how the economy performed in the second quarter.
• Several other central banks have decisions over the next few weeks, including the European Central Bank, Bank of England and Bank of Japan.

07/15/26 12:08

Does the Bank of Canada need to stimulate the economy?

– Jeremy Kronick and Steve Ambler

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The Bank of Canada held its policy rate constant at 2.25 per cent on Wednesday, meeting market expectations. This was despite headline inflation increasing to 3.2 per cent in May, up from 2.8 per cent in April. This is outside the Bank of Canada’s 1-to-3 per cent control range.

The instinct, looking at these inflation numbers, would be to hike. This is especially true when one considers that the last time inflation jumped above 3 per cent, in 2021, it eventually made its way to 8 per cent. But the situations are not the same. Leaving the overnight rate target at 2.25 per cent was the right call for the bank, and if anything, we might need a cut before we see a hike.

Read the full column here.

07/15/26 11:55

Why uncertainty has sent fixed mortgage rates higher but kept variable rates stable

- Erica Alini

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If you’re getting or renewing a mortgage right now, the tricky question is where fixed mortgage rates – not variable ones – might be headed. This isn’t how things normally work.

Usually, it’s the possible future course of variable rates, which tend to rise or fall whenever the Bank of Canada adjusts its key interest rate, that keeps mortgage borrowers up at night.

But the Bank of Canada has been holding rates steady as it balances the risk that high oil prices will lead to elevated inflation against the risk that Canada’s already flatlining economy will grow weaker.

Uncertainty surrounds both risks, but they’ve been cancelling each other out, which has kept the Bank of Canada – and variable mortgage rates – on hold.

Fixed mortgage rates are locked in for the duration of the mortgage term. But what kind of fixed rate you can get on a new or renewing mortgage is heavily influenced by Government of Canada bond yields, which affect banks’ borrowing costs.

Now, the bond market is primarily concerned about inflation. This has pushed bond yields up (here’s how that works). Also, Canadian bond yields are heavily influenced by the level of bond yields in the U.S., where the economy is humming along and inflation risks are higher.

This helps explain why fixed mortgage rates on new loans have been creeping up even as variable rates have held steady. As to where fixed rates are headed, that largely hinges on U.S. policy and politics. Your guess is as good as mine.

07/15/26 11:41

Macklem on the risk of higher oil prices

- Sophia Bertuzzi

“Clearly, if oil prices go higher, they stay higher, the likelihood that that gets passed on, broadens risks. There’s a progression from broadening to persistence. And yes, if that happens, we may well need to raise interest rates. That’s not our base case, but it is a serious risk.”

07/15/26 11:33

Macklem says inflation is concentrated in gasoline prices, but higher oil prices could spread to other goods

- Sophia Bertuzzi

“Obviously, you’ve seen in the last week [oil prices have] gone back up closer to around US$80-US$85, so they’ve backed up quite a bit, although they’re still a lot lower than they were in April. And yes, the longer oil prices stay high, the bigger is the risk that that begins to spill over into the prices of other goods and services, and inflation starts to broaden, it becomes more generalized, and that would certainly be a signal, a warning sign to us. Right now, what you see in the data is that the cause of inflation is very concentrated in gasoline prices. The latest [headline CPI] reading is 3.2 per cent. CPI ex-gasoline is only 2.2 per cent. Our measures of core, trim, and median are very close to 2 per cent. So far, it’s very concentrated in gasoline prices. We will be assessing very closely the spreading. We expect to see some pass through of higher oil prices to other prices, and we’ve built that into our projection.”

07/15/26 11:31

Macklem on strong consumers, improving exports and weakness in the housing market

– Mark Rendell

“You’ve got to give some credit to Canadian consumers. They’ve been resilient. Consumer spending is still expanding. It’s not a big number. There’s very little population growth in the Canadian economy at the moment, so there’s not new consumers entering the economy. But Canadian households are still spending. That is supporting growth.

“We’ve seen weakness in the housing market. As I said, we don’t expect the housing market to be a big boost to growth going forward. What we are seeing in the housing market is, after a period of decline, it is stabilizing. So it’s not going to be subtracting from growth if that holds.

Where we see a little more momentum than we have seen is in exports. Canadian businesses have been adapting to a more difficult trade relationship with the United States… They’re finding ways to work with their clients. They’re reconfiguring their supply chains. They’re getting on with business. And the other factor is the U.S. economy is strong. I mean, the reality is they need our exports, and you’re seeing U.S. businesses increase their orders for our Canadian exports.”

07/15/26 11:23

Carolyn Rogers on unsold condos in Toronto and Vancouver

– Mark Rendell

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“The condo market, both in British Columbia and in Toronto, is going through a pretty material correction. It’s sort of the accumulation of the effects of a big decline in an investor market, changing population growth. That’s left behind a bit of an overhang, both in the type of inventory and the price of inventory. It’s going to take a while for that to clear out. This is something we watch. It doesn’t have a big effect on our monetary policy decisions. It has an overall effect on housing…. What we see in the overall housing market from a financial stability perspective, a correction in one segment of the economy and one segment of the housing market is not a direct threat to financial stability. It has to be quite a bit broader and more persistent for that to spill over into a financial stability risk.”

07/15/26 11:21

Carolyn Rogers on the impact of major project proposals on business confidence

- Sophia Bertuzzi

“These are major projects that I would characterize as in the development stage. It’ll take a long time before they show up in the hard economic data. It would be hard to discern any one project’s effect on confidence measures from the survey data that we track, but I think what you could say is that the move up in optimism that we have in this outlook is affected overall by confidence, and I think it would be reasonable to think that one of the things contributing to that is some of these these larger project announcements.”

07/15/26 11:19

Macklem on the ‘dilemma’ between stimulating growth and managing inflation

- Sophia Bertuzzi

“Monetary policy has been facing this dilemma. Inflation is high, it’s above our target, it’s actually a little bit outside the one-to-three band. Growth’s been weak. The economy hasn’t really shrunk over the last year, but it hasn’t grown either. And there’s considerable excess supply in the economy, which means there’s room for the economy to grow without creating inflationary pressures. The thing is, you can’t at the same time raise rates to lower inflation and lower rates to raise growth. So there’s a dilemma. What we’re seeing relative to where we were is that you know if this forecast plays out, that dilemma will be resolving itself. Growth will be picking up, inflation will be coming down, and in that sense, yes, it’s a fairly positive outlook. There are risks around that outlook, which I’ve already talked about. The reality is that the world’s an uncertain place, and there’s always some uncertainty about how events will play through, how they will affect the Canadian economy, how quickly it’s adapting, how quickly higher costs will get passed through. We’ll be watching all those things, and as we’ve indicated, we’re prepared to respond as needed.”

07/15/26 11:16

Macklem says Canadian dollar weakness not a major factor in inflation

– Mark Rendell

“It’s not been a major factor. Canadian dollar has depreciated about a couple of cents since the last decision… You’ve seen some widening in government bond yields between Canada and the United States; I think that that’s weighed a bit on the Canadian dollar…. A weaker Canadian dollar does make our exports a little more competitive. At the same time, it does increase the costs of imports into Canada. We don’t forecast the Canadian dollar. We’ve assumed a 71-cent dollar going forward in our forecast…. The boost to inflation would be pretty small, and the impact on exports would be pretty small.”

07/15/26 11:15

Macklem says there are risks to sustainability of recent growth

- Sophia Bertuzzi

“We already have a fair amount of data for the second quarter, that’s looking pretty solid. The thing that we’re going to be assessing going forward is how sustainable is that pickup. When we talk to companies, when we look at the change in momentum, we do think it is sustainable, but, yes, there is a risk. Growth – particularly exports – could stall going forward. If exports stall, I think investment will stall, hiring will slow down. So there are some risks, but increasingly the economy is looking like it is in expansion."

07/15/26 11:12

Macklem says consecutive rate hikes still possible if oil prices spike

– Mark Rendell

“Let’s be frank: the situation in the Middle East remains very volatile. It looks like it’s a long way from being resolved. And so yes, if the oil prices go higher and they remain higher, there may well still be a need for consecutive hikes. I do want to stress, though, that that’s not our base case. It wasn’t our base case in April. It’s not our base case now. Our base case now is that oil prices will gradually ease, inflation in Canada will also gradually ease. But it is a risk.

“It’s not the only risk …. We are more encouraged that growth is picking up, but there are questions about how sustainable that pickup is …. If exports stall, if investment weakens again, if housing slows, there’ll be more excess supply in the economy, more downward pressure on inflation. So there are risks on both sides. And where we landed today is that at this moment our best judgment is where we are now looks appropriate, but we underlined uncertainty is high and we’re prepared to adjust monetary policy as needed.”

07/15/26 10:53

Key quotes from Governor Tiff Macklem’s press conference opening statement

– Mark Rendell

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On the risks to the economy:

“The two biggest risks to the projection are still the conflict in the Middle East and our trade relationship with the United States. There are also domestic risks to our inflation outlook.

As inflation comes down, there is risk that it gets stuck above the 2 per cent target. If cost increases and their pass-through are larger than expected or the economy recovers faster than expected, inflationary pressures will increase. On the other hand, there’s a risk that the second-quarter pickup in growth is not sustained. The recovery in exports could stall, which would likely weigh on business investment and hiring. A weaker economy would put more downward pressure on inflation.”

On the interest-rate decision:

“Governing Council judges the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2 per cent target, in line with the MPR projections. Uncertainty is still high. 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.”

On the outlook for inflation:

“Inflation is expected to stay elevated in June then ease gradually in the coming months, returning to the 2 per cent target in early 2027. This forecast is highly dependent on the path for oil and gasoline prices — it assumes oil prices come down and stabilize between US$70-US$75 per barrel. Since finalizing our forecast on Friday, the futures curve for oil prices has moved higher.

We’ve been looking through the direct effects of higher oil prices on inflation, but the longer they remain elevated, the bigger the risk they spill over to other goods and services. As we have said before, we will not let higher oil prices become persistent inflation.”

On a rebound in economic activity:

“Recent indicators point to continued solid consumer spending. Housing activity, which has been weak, looks to be stabilizing. Export growth has resumed and is expected to continue to strengthen, albeit along a lower path. Business investment is picking up, boosted in the near term by the oil and gas sector. Although the Canada-US-Mexico Agreement is now subject to annual reviews, more businesses report they are finding ways to navigate through the uncertainty. Government spending also contributes to higher economic activity over the projection. Overall, our growth outlook is similar to our April forecast, but the data we have received since April have increased our confidence that the economy is indeed working its way through this period of global upheaval.”

07/15/26 10:51

BMO Capital Markets economist: Volatility in energy prices keeping BoC on ‘high alert’

– Darcy Keith

From Douglas Porter, chief economist at BMO Capital Markets

“The recent run of firmer data, as well as robust financial markets, has the BoC a bit more upbeat on the near-term outlook, but not enough to convincingly shift the medium-term view. That’s in light of the uneven pattern for GDP over the past 18 months, and the lingering uncertainty around the USMCA. Until there are clear signs that the output gap is closing on a consistent basis, it’s going to be challenging for the BoC to turn more hawkish. The volatility in energy prices is also keeping the BoC on high alert, as that’s the X factor on the near-term inflation outlook. The bank is firmly on hold, and we expect them to remain there through the rest of 2026 — assuming that oil prices don’t flare dramatically higher from here.”

07/15/26 10:49

National Bank economists on potential for hikes or cuts

– Darcy Keith

Economists Taylor Schleich and Vy Le of National Bank react to today’s decision:

“Notably, Governor Macklem didn’t explicitly warn about the potential for hikes (in response to inflation broadening) or cuts (in response to tariff-induced economic weakness). That’s probably appropriate as we see the risks of both scenarios as having been diminished over recent weeks/months. Better contained energy prices are limiting the scope for further inflation (though the flare-up in the conflict bears watching), while economic data appears to be firming up, diluting the case for cuts. Moreover, despite trade clouds hovering over Canada, businesses are planning to invest, and exporters are growing more optimistic, per the latest Business Outlook Survey. We agree that the current policy rate is appropriate and expect the Bank to remain sidelined through the end of the year. We still expect eventual tightening in the first half of 2027 as economic slack is gradually absorbed.”

07/15/26 10:46

Desjardins’ Royce Mendes: BoC likely to remain on sidelines for rest of 2026

– Darcy Keith

Reaction from Royce Mendes, head of macro strategy at Desjardins:

“We continue to believe the Bank of Canada will remain on the sidelines for the rest of this year, but significant changes to the outlook for oil prices or trade with the U.S. could easily change that view. While the tone of today’s communications is very neutral, markets are treating the releases as dovish likely because Governing Council removed its reference to consecutive rate hikes. Traders are pricing in a roughly 67 per cent chance that the Bank of Canada hikes rates. We continue to disagree with that tilt, believing that the probability of rate cuts is at least as likely as rate hikes.”

07/15/26 10:44

BoC says that risks to global financial conditions could affect Canada

- Sophia Bertuzzi

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While the Bank of Canada notes in its monetary policy report that strong investment in AI – notably in the United States and China – are supporting global growth, it said “a sharp reassessment of the prospects for AI could trigger a correction in equity markets, reducing both consumer confidence and household wealth in the United States and abroad.”

While equity markets have been significantly benefiting from the investments in AI and its infrastructure, technology stocks have been volatile since the start of the year as investors grapple with uncertainty surrounding the sustainability in AI developments and the long-term payoffs on their investments.

The bank also said that rising yields on long‑term government bonds – as investors demand more compensation in an uncertain environment – could also “tighten financial conditions and weaken demand for Canadian goods and services, creating excess supply and putting downward pressure on inflation in Canada.”

07/15/26 10:42

Capital Economics economist on BoC decision

– Darcy Keith

Here’s what Thomas Ryan, North America economist of Capital Economics, had to say in a statement reacting to today’s decision:

“The bank’s messaging accompanying its decision to leave interest rates unchanged at 2.25 per cent in July suggests it has no intention of responding to energy-driven inflation with higher interest rates, given its continued concerns about the economy, with the unemployment rate described as ‘soft’ and references to ‘excess supply’. This reinforces our view that the bank will remain on hold this year, whereas money markets continue to price in some chance of tightening.”

“Near-term adjustments still appear to be off the table for now. While the opening statement to the press conference acknowledged the recent rise in headline inflation, it retained the line from June that ‘we’re not seeing broad spillovers of higher energy prices’ and explicitly noted that ‘measures of core inflation remained close to 2 per cent’. Although the bank sounded more upbeat on economic activity than it did in June, reflecting the way the data have evolved, the policy statement continued to highlight softness and attributed subdued underlying domestic inflation partly to that. In particular, it noted that ‘war-related cost pressures are still working their way through some consumer prices but are being offset by downward pressure on other prices from continued economic slack’.”

07/15/26 10:37

BoC lowers 2026 GDP estimate, but sees growth strengthen in Q2

– Mark Rendell

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The bank lowered its estimate for 2026 GDP growth to 0.7 per cent from 1.2 per cent in the April monetary policy report, as a result of the unexpected GDP contraction in the first quarter of the year. However, it increased its forward-looking GDP projections.

It now expects GDP to grow 1.8 per cent in both 2027 and 2028, up from a previous projection of 1.6 per cent and 1.7 per cent, respectively, in the April MPR. The economy is expected to grow 2.5 per cent at an annualized rate in the second quarter.

The bank said that labour market conditions “continue to be soft but broadly stable.”

There are still plenty of risks surrounding this outlook. Slow population growth, tied to the federal government’s immigration restrictions, remains a drag on economic growth, and the housing market remains in a long-term slump.

“The overhang of unsold condominiums in Vancouver and Toronto, along with affordability issues, could mean that the recovery in housing activity is slower than expected,” the bank said in the MPR.

07/15/26 10:34

BoC forecasts headline inflation to decline to around 2.5% by August

– Mark Rendell

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In its quarterly monetary policy report, published alongside the rate announcement, the bank said it expects headline inflation to decline to around 2.5 per cent by August, then to move back to its 2-per-cent target by early 2027.

“This easing is based on the assumption that oil prices are around US$75 per barrel and gasoline refinery margins edge down. But the situation in the Middle East remains fluid and subject to flare‑ups, which could affect oil prices and inflation,” the bank said in the report.

Meanwhile, the bank expects economic growth in Canada to strengthen through the summer and second half of the year, on the assumption exports improve, business investment picks up and consumer and government spending remains robust.

Exports are getting a boost from high oil prices, and could be further buoyed by a weak Canadian dollar – which makes Canadian products more attractive to foreign buyers – and U.S. demand for the raw materials tied to the massive build-out of data centres for artificial intelligence, the bank said.

Business investment is expected to improve as energy companies take advantage of high oil prices and businesses become more comfortable operating in an uncertain trade environment defined by U.S. protectionism, the bank said.

“Overall, our growth outlook is similar to our April forecast, but the data we have received since April have increased our confidence that the economy is indeed working its way through this period of global upheaval,” Mr. Macklem said.

07/15/26 10:26

CIBC Capital Markets economist on BoC decision

– Darcy Keith

Street reaction to today’s decision is starting to flow in. Here’s Katherine Judge, senior economist at CIBC Capital Markets:

“The statement continued to point to risks from the conflict in the Middle East against U.S. trade policy uncertainty, but noted that the economy is improving and core inflation measures remain close to target, showing little sign of spillover from elevated energy prices. … Labour market conditions are viewed as soft despite the more constructive labour reports received recently, leaving ample economic slack to be absorbed still, and as a result we see the BoC leaving rates unchanged for the remainder of this year.”

07/15/26 10:18

Trade and geopolitical conflict remain the two largest threats to inflation

- Sophia Bertuzzi

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The July monetary policy report said that Canada’s trade relationship with the United States and the war in the Middle East remain the two most important risks for inflation.

While the BoC assumes the USCMA will remain in place with annual reviews, it said uncertainty could still weigh on business investment and household spending, especially if the U.S. announces additional trade policies.

“The economy is adjusting to U.S. tariffs, and the impact of trade‑related uncertainty is assumed to gradually fade.” the bank said.

The conflict in Iran remains a considerable and perhaps more pressing risk, as escalations over the last week led to another closing of the Strait of Hormuz. About 20 per cent of the world’s oil passes through the waterway. The bank said that if the closing is sustained, energy prices will soar and other commodities that travel through the strait will face supply disruptions and push up inflation globally.

The bank said they assume shipping through the strait will gradually return to normal, but uncertainty remains high. Only 11 vessels passed through the strait on Tuesday, according to maritime intelligence firm Kpler. Before the conflict began, about 100 ships would travel the strait daily.

07/15/26 10:10

Loonie, bond yields tick lower after BoC decision

– Darcy Keith

The Canadian dollar and short-term bond yields ticked lower after the Bank of Canada announced no change in its key policy rate and cut its economic growth projections for this year.

At 9:50 a.m. ET, the Canadian dollar was at 71.06 US cents, at its lowest point of today’s trading session, and down from a high earlier of 71.16 US cents.

The two-year Canada bond yield was down 2.6 basis points at 2.884 per cent - its lowest level since Monday. Canada’s five-year yield remains well within its range of this week.

While today’s decision on the overnight rate was in no way a surprise and was fully priced into markets, traders are interpreting the policy statement and outlook as mildly dovish so far. Likely soothing to them was the bank cutting its 2026 GDP projection to 0.7 per cent from 1.2 per cent in ⁠April, and the bank saying that inflation should ​remain near the midpoint of its 1- to 3-per-cent target range over the next two years. The bank also dropped references to possible future consecutive hikes.

The Canadian dollar has been on a bit of a comeback trail this month after enduring a pretty consistent slide in May and June.

If the upward traction picks up steam, there’s potential for sharp short-covering rallies. According to data up to July 7, the Canadian dollar in futures markets has a net short position of $12.2-billion, the highest since late 2024 and the most net shorts among any of the major currencies.

No sign of that happening today, however.

07/15/26 09:52

Bank of Canada maintains key interest rate at 2.25%

- Mark Rendell

The Bank of Canada held its benchmark interest rate steady on Wednesday against the backdrop of volatile energy markets and improving domestic data.

As widely expected, the central bank’s governing council opted to keep the policy rate at 2.25 per cent for the sixth consecutive time.

The bank has been on hold since October, through a period of stagnant economic growth in Canada and soaring global oil prices caused by the war between the United States and Iran and the closure of the Strait of Hormuz.

Energy-related inflation risks have eased in recent months, as oil prices have declined from highs in April and May. And after a year of essentially no growth, the Canadian economy appears to be picking up heading into the summer.

Still, the bank warned that the economic outlook remains uncertain, and the path for inflation is heavily dependent on the conflict in the Middle East, which has heated up in recent days, causing another spike in benchmark oil prices.

Read more about today’s Bank of Canada decision.

07/15/26 09:10

BoC’s security guards are on strike

- Vanmala Subramaniam

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Bank of Canada security guards are on strike, complicating logistics for the central bank during today’s rate announcement. The in-person lock-up for journalists was cancelled and the press conference was moved online.

The strike, involving approximately 50 security guards represented by the Public Service Alliance of Canada has been continuing since June 23. In their absence, the central bank contracted security guards from a private company to perform the work of the striking workers but was subsequently ordered by the federal labour board to stop that practice because it violated federal labour law.

Now the union is alleging that the central bank in fact did not stop using replacement workers. In a complaint filed Tuesday with the Canada Industrial Relations Board, the union says it spotted individuals patrolling the bank’s perimeter who were not employees of the bank and is inferring that they are private contractors. The bank insists that it complied with the previous CIRB ruling.

Negotiations are stalled after more than 18 months of bargaining.

Read the full story here.

07/15/26 08:45

Today’s decision and implications for the Canadian dollar

- Sophia Bertuzzi

This rate decision could have implications for the Canadian dollar, which has stumbled to lows not seen since the early days of President Donald Trump’s tariffs threats on Canada.

The loonie slid to 70 US cents mid-June and has hovered slightly above since, down from a high above 74 US cents in late January.

The loonie’s weakness is really a story about U.S. dollar strength. Strong U.S. economic data, oil-driven inflation risk and a more hawkish-than-expected U.S. Federal Reserve has pushed up U.S. Treasury yields, prompting investors to exchange loonies for greenbacks in the pursuit of better returns.

The U.S. dollar has also been buoyed by hefty capital investment in AI and demand by foreign investors for U.S. equities.

There’s a significant gap between central bank interest rates in Canada and the United States, with the Bank of Canada’s benchmark interest rate at 2.25 per cent compared with the U.S. Federal Reserve’s Fed funds rate at 3.5 to 3.75 per cent (The Fed targets a range). This differential makes U.S. government bonds more attractive for investors seeking risk-free returns, pushing up the U.S. dollar.

In recent months, markets have begun to expect rate hikes from the Fed in the back half of the year, while the BoC is expected to remain on hold through most of 2026 and potentially into 2027.

If Governor Tiff Macklem sounds particularly hawkish, the Canadian dollar could rally. The opposite would happen if he sounds notably dovish.

07/15/26 08:20

Recession talk has been shelved heading into this decision

- Mark Rendell

Ahead of the last Bank of Canada interest-rate decision, much of the chatter on Bay Street and in Ottawa was about whether the Canadian economy was in a recession. The central bank played down the idea of a “technical recession,” and the conversation has largely been shelved heading into this decision.

After two consecutive quarters of falling gross domestic product, the Canadian economy seems to have rebounded somewhat heading into the summer.

GDP increased 0.5 per cent, month-to-month, in April and Statistics Canada’s advanced estimate for May showed another 0.1-per-cent gain.

High oil prices pushed Canada’s merchandise trade surplus to a four-year high in May, and the unemployment rate dipped to 6.5 per cent in June.

The Canadian economy is hardly firing on all cylinders, but consumer spending remains sturdy and business investment appears to be picking up, despite continuing uncertainty about the Canada-U.S. trade relationship. (On July 1, the Trump administration declined to extend the United States-Mexico-Canada Agreement for another 16 years, sending the treaty into a period of annual reviews until 2036).

The Bank of Canada will publish a new economic forecast today in its quarterly monetary policy report. In the April MPR, the bank penciled in 1.2-per-cent GDP growth in 2026 and 1.6 per cent in 2027. It expected 1.5-per-cent annualized growth in the second quarter.

These numbers will likely be revised given both the weaker-than-expected first quarter and the rebound in the second quarter.

07/15/26 08:00

Will BoC raise interest rates in 2026?

- Matt Lundy

Will the Bank of Canada increase interest rates this year? The path forward is murky.

Investors are pricing in a roughly 90-per-cent chance that the central bank raises its policy rate by a quarter-percentage-point by the end of the year, according to Bloomberg data as of Tuesday afternoon. At earlier points this year, investors were pricing in several hikes, but that’s dissipated with the decline in global oil prices, subdued readings of core inflation and general sluggishness in the domestic economy. Many economists on Bay Street aren’t expecting any moves over the rest of this year.

In the U.S., meantime, investors are pricing in between one and two quarter-point hikes from the Federal Reserve in 2026. But those odds eased on Tuesday after the release of surprisingly tame inflation data.

07/15/26 07:00

Bank of Canada expected to stay on hold at 2.25%

- Mark Rendell

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The Bank of Canada is expected to stay the course today, keeping its benchmark interest rate at 2.25 per cent for the sixth consecutive time amid gyrating oil markets and improving domestic data.

Heading into this week, the central bank seemed to be in a comfortable spot.

Global oil prices tumbled following the mid-June ceasefire agreement between the United States and Iran. Meanwhile, a string of positive data suggested the Canadian economy was perking up after a two-quarter slump. The “dilemma” of weak growth and rising prices – a dynamic that pulls interest rates in two different directions – seemed to be fading.

The resumption of the U.S.-Iran conflict in recent days has made things more complicated. Benchmark oil prices rose sharply following news that the Strait of Hormuz was once again closed to most tanker traffic. The price of a barrel of West Texas Intermediate crude was trading around US$80 on Tuesday – up from around US$70 last week but still well below the US$110 reached in April.

These latest oil price moves won’t make much of a difference for Wednesday’s interest rate decision. But it does mean the bank will have a harder time shrugging off persistent inflation risks. At the very least, Bank of Canada Governor Tiff Macklem will likely reiterate that the bank will remain “nimble” and could adjust interest rates if needed.

Rising gasoline prices pushed headline inflation in Canada to 3.2 per cent in May – the first time it has topped 3 per cent since late 2023. But measures of core inflation, which capture underlying price pressures in the economy, remained close to the bank’s 2-per-cent target, suggesting the energy price shock hasn’t broadened out to other goods and services.

Financial markets expect the central bank to remain on hold through the summer and the fall before raising the policy rate by a quarter-point in December. A hawkish message from Mr. Macklem would reinforce market pricing for a late-year hike, while a dovish message would push back against those expectations.

Alongside the rate announcement, the bank will publish its quarterly monetary policy report with new inflation and economic growth forecasts.

Read more about today’s expected Bank of Canada decision.