OTTAWA: The Bank of Canada is widely expected to leave its benchmark interest rate unchanged at 2.25 per cent when it announces its latest monetary policy decision on July 15, as policymakers weigh improving domestic economic conditions against persistent inflationary pressures and growing global uncertainty.
Economists say the central bank has little immediate reason to adjust borrowing costs, despite concerns arising from higher oil prices, geopolitical tensions in the Middle East, and uncertainty surrounding Canada’s future trade relationship with the United States.
David-Alexandre Brassard, Chief Economist with Chartered Professional Accountants Canada, said inflation remains relatively contained while the Canadian economy has shown greater resilience than many analysts had anticipated earlier this year.
After concerns that Canada was heading toward a technical recession and following the loss of more than 100,000 jobs earlier in the year, recent economic data indicate stronger-than-expected growth and a rebound in employment. Brassard believes the Bank of Canada is in a favourable position to maintain its current policy while monitoring future economic developments.
Mortgage analysts also expect no change in the overnight lending rate. Jamie David, Senior Director of Mortgages at Ratehub.ca, said recent inflation data provide little justification for an immediate rate cut, while elevated inflation expectations and ongoing global uncertainties argue against reducing borrowing costs.
The Bank of Canada continues to balance inflation risks with signs of slower economic growth, making a cautious approach the most likely outcome.
International developments are also influencing the Bank’s outlook. Oil prices rose sharply after renewed conflict involving Iran disrupted global energy markets, increasing concerns that Canadians could soon face higher gasoline and transportation costs. At the same time, uncertainty surrounding future North American trade relations has added another layer of economic risk after U.S. President Donald Trump indicated that he would not seek to extend the Canada-United States-Mexico Agreement (CUSMA) beyond its current term, which expires in 2036.
CIBC Senior Economist Andrew Grantham expects Canada’s economy to post moderate growth during the second quarter of the year, with additional support anticipated from increased economic activity associated with the FIFA World Cup. However, he believes that growth is likely to moderate later in the year, reinforcing the need for interest rates to remain at current levels to support a sustainable economic recovery.
The Bank of Canada’s primary objective remains keeping annual inflation within its target range of 1 to 3 per cent, with a long-term goal of maintaining inflation near 2 per cent. According to the latest Statistics Canada data, Canada’s annual inflation rate stood at 3.2 per cent in May, remaining slightly above the Bank’s preferred range.
In addition to inflation, policymakers consider employment, economic growth, exports, consumer spending, and overall cost-of-living trends when determining interest rate policy.
The federal government and the Bank of Canada are also reviewing Canada’s monetary policy framework ahead of its scheduled renewal before the end of 2026. Preliminary consultations have shown broad public support for maintaining the Bank’s flexible inflation-targeting approach while highlighting growing concerns over housing affordability and the rising cost of living.
The Bank of Canada is expected to announce its next interest rate decision on Wednesday, July 15, with financial markets largely anticipating that the benchmark rate will remain unchanged unless there is a significant shift in economic conditions before then.