Bank of Canada Holds Policy Rate at 2.25% for Sixth Consecutive Meeting
On Wednesday, July 15, 2026, the Bank of Canada held its overnight lending rate steady at 2.25% for the sixth consecutive decision, which was widely expected by analysts.
The Bank was quick to point out in its announcement that the Canadian economy showed signs of improvement despite risks and uncertainties related to the war in the Middle East and U.S. trade policy.
The Bank noted Canada’s economic performance over the past year has been uneven, while labour market conditions remain soft. However, the Bank explained there were clear signs that more broad-based economic growth was developing, with Gross Domestic Product (GDP) estimated to have picked up in the second quarter by about 2.5%.
The Bank’s tone related to economic news was one of stabilization. This included housing activity, exports, strong expected government spending, and business investment, with Canadian enterprises reporting new ways to navigate the uncertain trade environment.
The Bank now expects Canada’s GDP to grow by only 0.7% in 2026, revised down from 1.2% in its April Monetary Policy Report (MPR), followed by growth of 1.8% in both 2027 and 2028.
Consumer Price Index (CPI) inflation strengthened to 3.2% in May largely due to higher energy prices. However, excluding these, inflation was only 2.2% and the Bank’s preferred core measures were close to 2%. The Bank forecasts that inflation will remain elevated in June but will ease in subsequent months, returning to its 2% target in early 2027, making special note this forecast would depend on future energy prices.
In its July MPR, the Bank outlined four channels through which the war in the Middle East could affect upstream costs that would materially impact inflation for consumers:
- Supply chain bottlenecks;
- Elevated transportation costs;
- Longer-term supply shortages; and
- Additional short-term demand pressures.
Following the Bank’s announcement, Governor Tiff Macklem outlined the risk of higher energy prices on long-term inflation: “As inflation comes down, there is risk that it gets stuck above the 2% target. If cost increases and their pass-through are larger than expected or the economy recovers faster than expected, inflationary pressures will increase.” In addition, Macklem reiterated the Bank’s position, “As we have said before, we will not let higher oil prices become persistent inflation.”
The Bank’s Governing Council stated, “the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target,” in what is likely clear messaging that they will not be adjusting rates unless otherwise necessary.
The bottom line: The Bank of Canada is still willing to look through energy-driven higher inflation for now, but the recent worsening of the war in the Middle East means the odds of a rate hike later this year are once again on the rise.
The Bank of Canada will make its next scheduled interest rate announcement on September 2, 2026. The Bank’s next MPR will be released on October 28, 2026.