Bank of Canada Expected to Hold Overnight Rate at 2.25% Amid Contained Inflation

A Reuters poll of 36 economists conducted July 7-10 indicates that the Bank of Canada (BoC) will keep its overnight policy rate at 2.25% on its July 15 meeting and is likely to maintain that level well into 2027. All respondents expected the rate to stay unchanged next week, and a majority (19 of 30) projected no further adjustments until at least July 2027.

Reuters

Inflation rose to 3.2% in May, briefly moving outside the BoC’s 1%-3% target band for the first time since December 2023, but poll medians forecast inflation to average 2.6% in 2026 with core inflation at 2.1%. Higher oil prices have boosted export revenues, and the labour market shows signs of recovery after a technical recession, leading analysts to view the economy as gradually strengthening. Growth is projected to average 1.8% in 2027, up from 0.7% in the current year, while the unemployment rate is expected to hover around the current 6.6% level through 2026.

Reuters

The United States-Mexico-Canada Agreement (USMCA), known in Canada as CUSMA, remains in force for another ten years with annual reviews. Seventeen economists surveyed on the poll’s supplemental question judged the likelihood of a U.S. withdrawal as low. The agreement continues to be described as beneficial for trade across both the Canada-U.S. and U.S.-Mexico borders.

Reuters

• Avery Shenfeld, chief economist at CIBC Capital Markets, emphasized that “there’s no urgency to cut interest rates given signs that growth has resumed in the spring, and no need to seriously talk about hiking rates given the degree of economic slack and the stability in core inflation measures.”

Reuters

• Adam Schickling, senior economist at Vanguard, noted that a future hike would require “more of energy price increases passing through in the economy or a de-anchoring of inflation expectations,” while a cut could be triggered by “an evolution of trade policy to the downside, broader economic contraction or higher unemployment rates.”

Reuters

• Nathan Janzen, assistant chief economist at the Royal Bank of Canada, argued that “from an economic rationale perspective, there’s a strong argument to keep USMCA from the perspective of all parties involved.”

Reuters

• “There's no urgency to cut interest rates given signs that growth has resumed in the spring, and no need to seriously talk about hiking rates given the degree of economic slack and the stability in core inflation measures,” — Avery Shenfeld, Chief Economist, CIBC Capital Markets

Reuters

• “For a hike, there will have to be more of energy price increases passing through in the economy or a de-anchoring of inflation expectations.” — Adam Schickling, Senior Economist, Vanguard

Reuters

• “From an economic rationale perspective, there's a strong argument to keep USMCA from the perspective of all parties involved.” — Nathan Janzen, Assistant Chief Economist, Royal Bank of Canada

Reuters