BANK OF CANADA EXPECTED TO HOLD RATES AS INFLATION RISKS EASE

The Bank of Canada is expected to keep its overnight interest rate unchanged at 2.25% at its July 15 policy meeting, according to a Reuters poll of economists conducted from July 7 to July 10. The poll found economists broadly expect the central bank to hold rates through the rest of 2026 and well into 2027 as inflation risks appear contained.

Reuters reported that the Bank of Canada last changed rates in October 2025, when it lowered borrowing costs in response to economic weakness linked to U.S. tariffs. Since then, the outlook has improved enough that most economists do not expect further cuts in the near term.

Inflation remains the key constraint. Reuters reported that Canadian inflation rose temporarily to 3.2% in May, slightly above the Bank of Canada's 1% to 3% target range, but economists expect price growth to slow again. The poll projected average inflation of 2.6% in 2026, with core inflation at 2.1%.

A separate Bank of Canada survey released July 6 found that Canadian firms' inflation expectations eased as some energy and geopolitical pressure receded, according to Reuters. The central bank's follow-up survey showed inflation expectations dropped, although business sentiment weakened for the first time in three quarters.

Canada's economy is also showing signs of recovery after a mild recession. Reuters reported that stronger oil exports and an improving labour market have reduced the urgency for additional rate cuts, while unemployment is projected to hold around 6.6%. Economic growth is expected to rise from 0.7% in 2026 to 1.8% in 2027.

The outlook is not risk-free. Reuters reported that economists see only a slight chance of rate hikes if energy prices spike or inflation expectations rise again. Uncertainty also remains around U.S. trade policy after the Trump administration declined to extend the USMCA agreement, although economists surveyed by Reuters viewed the risk of a full U.S. withdrawal as low.

The expected hold would place the Bank of Canada in a wait-and-see position. Lowering rates too quickly could risk renewed inflation pressure, while holding too long could slow the recovery if consumer spending, business investment or hiring weaken.

The immediate questions are whether June and July inflation data confirm the expected cooling, whether oil prices remain stable, and whether U.S. trade policy creates new pressure on Canadian growth. For now, economists expect the central bank to keep policy steady rather than restart cuts.

Fact-check date: 11 July 2026
Article type: News
Sources: Reuters, Bank of Canada survey reporting by Reuters, The Globe and Mail, C.D. Howe Institute