Bank of Canada holds rate steady despite surprise Q1 economic contraction
Officials say they're not alarmed by the downturn. Early signs suggest rebound in second quarter as war and trade uncertainty loom.
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The Bank of Canada held its policy interest rate steady at 2.25 per cent for a fifth consecutive time on June 10, unfazed by a surprise economic contraction in the first quarter of 2026.
The central bank had forecast 1.5 per cent annualized growth for the first three months of the year, but the Canadian economy posted a slight contraction instead. Despite back-to-back quarterly GDP declines, the bank's governing council found little cause for alarm. Most industries continued growing in Q1, and household resilience indicators pointed to underlying strength.
Governor Tiff Macklem reiterated that the Canadian economy is "not clearly in a recession." A true downturn, the council agreed, would involve deep, widespread, and persistent decline in activity—not the volatile quarterly swings seen so far.
Statistics Canada data suggested early signs of rebound starting in Q2. The bank flagged ongoing uncertainty from the war in Iran and the pending review of the North American free trade pact as potential headwinds. The Bank of Canada is expected to hold steady again at its July 15 decision, when it will release updated economic forecasts.
