On June 10, 2026, the Bank of Canada announced that it would keep its key policy rate unchanged at 2.25%, in line with broad market expectations. This marks the fifth consecutive policy meeting at which the Bank of Canada has held interest rates steady. The central bank stated that, at present, it has not yet observed elevated energy prices being passed on to the prices of other consumer goods.There is clear evidence that price pressures are broadly transmitted and giving rise to persistent inflation, but it also emphasized that, if necessary to curb inflation, it will not hesitate to raise interest rates.

The Bank of Canada noted that the current economic outlook is shaped by a confluence of multiple factors. The escalation of tensions in the Middle East and the prospect of a war with Iran have driven up global oil prices and gasoline costs, further straining household budgets. Although Canada, as a net exporter of crude oil, stands to gain additional revenue from higher energy prices, rising oil prices are exerting a drag on household consumption. The central bank believes that the rise in energy prices triggered by the war will continue to be regarded as a temporary factor in the short-term impact on overall inflation, but it will not allow this to evolve into broader and more persistent inflationary pressures.

On Wednesday, the Bank of Canada announced it would hold its benchmark interest rate steady at 2.25%, marking the fifth consecutive pause and in line with economists’ expectations.

Since the central bank cut interest rates by 25 basis points last October, it has remained on hold and has not lowered rates again.

Meanwhile, a recent report indicates that current home prices—having fallen sharply since many homeowners first took out their mortgages—could also pose challenges for some of them.

According to the Bank of Canada’s May Financial Stability Report, if home prices remain at their current levels, approximately 10% of mortgage holders in the Toronto area may be unable to refinance their mortgages by 2027.

Recently released economic data show that Canada’s economy contracted unexpectedly in the first quarter of 2026, marking the second consecutive quarterly decline on an annualized basis. Based on this, some economists argue that Canada has entered a “technical recession.” In response, Bank of Canada Governor Tiff Macklem stated that the Canadian economy has been broadly stagnant over the past year, and that describing the current situation as “economic weakness” is more accurate than labeling it a “recession.” He believes that, despite the weak economic performance, it is still insufficient to characterize the overall situation as a recession.

Most economists believe that the Bank of Canada is not currently in a hurry to adjust interest rates. A Reuters survey of 34 economists shows that the market widely expects the central bank to keep interest rates unchanged for the remainder of 2026, a view shared by more than 80% of respondents. However, money market pricing continues to reflect the possibility of a 25-basis-point rate hike by the Bank of Canada in December.

On the inflation front, Canada’s headline inflation rate rose to 2.8% in April. McClellan stated that the central bank expects inflation to remain around 3 percent for the foreseeable future, before gradually easing back to its 2 percent target. Rising energy prices triggered by the Middle East conflict have placed monetary policymakers in a dilemma: raising interest rates to curb inflation could further weigh on already sluggish economic growth, while cutting rates to support the economy might heighten the risk of persistently high inflation. Against this backdrop, maintaining the current policy rate is regarded as a relatively balanced choice between growth and inflation risks.

Meanwhile, economists widely regard the upcoming review of the United States–Mexico–Canada Agreement (USMCA) as one of the most significant external uncertainties currently facing Canada’s economy. McLeam reiterated that if the United States introduces new, significant trade restrictions, Canada’s economic growth could be adversely affected, potentially prompting the central bank to cut interest rates in support of the economy. Conversely, should persistently high energy prices begin to generate broader inflationary pressures, the central bank may need to implement successive policy rate hikes to prevent inflation expectations from becoming entrenched.

According to interpretations from various institutions, while keeping interest rates unchanged, the Bank of Canada has placed greater emphasis on economic headwinds rather than inflationary pressures, adopting an overall dovish policy stance and seeking to preserve flexibility and room for maneuver in future policy adjustments.

KPMG Chief Economist Ali Jaffery believes that the Bank of Canada has grown more confident in its strategy of “ignoring short-term transmission effects” in response to energy price shocks. The persistent excess supply, stagnant GDP growth, and gradual cooling of core inflation in the current economy provide policymakers with room to adopt a wait-and-see approach. He pointed out that by characterizing stagflation as a “conundrum for monetary policy,” the central bank is, in effect, leaving itself room to adjust its policies in the future in response to inflation trends. If inflation were to pick up further, a rate hike would, in theory, remain possible; however, based on the broader economic data, there is currently no basis for raising interest rates. He expects economic activity to rebound in the second quarter, and the Bank of Canada is likely to keep interest rates unchanged throughout 2026.

Bryan Yu, Chief Economist at Central1 Credit Union, also believes that in this statement, the Bank of Canada has placed greater emphasis on the domestic economy’s weakness than on the risks of rising inflation, sending a relatively clear “dovish” signal. The central bank specifically cited factors such as declining government spending, a sluggish housing market, and weak business investment as key reasons for maintaining interest rates. Data show that Canada’s GDP contracted by 0.1% at an annualized rate in the first quarter, falling short of the central bank’s earlier forecast of 1.5% and marking the second consecutive quarterly decline, thereby meeting the technical definition of a recession. Against this backdrop, Yu argues that the Bank of Canada has no pressing reason to raise interest rates.

Andrew Grantham, Senior Economist at CIBC Capital Markets, stated that the Bank of Canada is weighing the dual impact of high oil prices on both growth and inflation, and therefore requires more time to assess how risks are evolving. The central bank has not ruled out the possibility of future rate hikes or cuts, but if it is ultimately compelled to tighten policy, the magnitude of any rate increases could exceed that of potential rate reductions. Overall, the Bank of Canada has demonstrated considerable patience, believing that there is currently ample time to monitor developments in energy prices, the trade environment, and domestic economic trends.

Taking into account a range of perspectives, as the uncertainties stemming from trade tensions and energy prices gradually ease, the current policy rate of 2.25% is expected to be sufficient to support Canada’s economy in gradually returning to growth in the second half of 2026 and throughout 2027. The Bank of Canada is likely to remain on hold in the near term, balancing the need to anchor inflation expectations with the goal of supporting the economic recovery, while retaining the flexibility to adjust its policy in response to evolving economic and inflation data.