Bank of Canada holds rate steady at 2.25%, signals economic recovery ahead

The Bank of Canada held its benchmark interest rate steady for the sixth consecutive time on Wednesday, saying it expects the economy to rebound after struggling early in the year.

The policy rate remains at 2.25 per cent. Governor Tiff Macklem said the economy is still grappling with heightened uncertainty but officials are growing more confident it's working through those headwinds. He signalled the governing council is ready to adjust if needed but sees the current rate as appropriate to return inflation to two per cent and support recovery.

Canada's GDP growth was flat over the past year as the economy adjusted to new tariffs, elevated uncertainty, and slower population growth. However, the central bank now expects the second quarter to show 2.5 per cent growth as temporary drags from auto production and delayed government spending unwind.

Inflation hit 3.2 per cent in May as a global energy shock from the Iran war sent gasoline prices surging. When gas prices are excluded, inflation remains near the two per cent target, suggesting higher oil costs haven't spread widely into other consumer goods yet.

Macklem warned that if oil prices remain elevated, the risk grows they'll spill into other goods and services. "We will not let higher oil prices become persistent inflation," he said. Food inflation is expected to remain sticky through early 2027 due to higher fuel and fertilizer costs tied to Middle East disruptions.