Bank of Canada expected to hold key interest rate for fifth consecutive time as economy stagnates
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The Bank of Canada building in Ottawa in April. The central bank is widely expected to keep the policy rate at 2.25 per cent.Sean Kilpatrick/The Canadian Press
06/10/26 08:05
Markets price in on BoC hike by end of 2026
– Matt Lundy
Investors aren’t expecting any moves from the Bank of Canada this morning. Swaps markets are pricing in a 0-per-cent chance that the central bank changes its key police rate of 2.25 per cent. (That’s right, zero.)
The bigger question is what Governor Tiff Macklem signals about the months ahead. Markets have fully priced in one quarter-point rate hike by the end of the year, although many economists on Bay Street doubt that rates will move higher in 2026, given that core inflation is subdued and the domestic economy looks stagnant.
Likewise, investors are expecting one rate hike from the Federal Reserve this year, owing to persistent inflationary pressures in the United States. President Donald Trump, meanwhile, wants interest rates to be lower. This is heaping pressure on Mr. Trump’s appointment as Fed chair, Kevin Warsh, who presides over his first rate decision next week.
06/10/26 07:00
BoC expected to remain on hold amid competing inflation and growth risks
– Mark Rendell
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Bank of Canada Governor Tiff Macklem and deputy governor Carolyn Rogers participate in a news conference following the April interest rate announcement.Spencer Colby/The Canadian Press
Canada’s economic growth engine is sputtering, but headline inflation is running hot. That’s a recipe for the Bank of Canada to sit on its hands and bide its time.
Bay Street analysts expect the central bank to keep its policy rate at 2.25 per cent for the fifth consecutive time. The question this morning is how Governor Tiff Macklem and his colleagues describe the balance of risks facing the Canadian economy.
Mr. Macklem struck a hawkish note at the last rate announcement in April, warning that the bank could be forced to deliver “consecutive” rate hikes if the U.S.-Iran war continued and global oil prices remained high.
Since then Canadian inflation data has been relatively benign. Headline inflation came in at 2.8 per cent in April, pushed up by gasoline prices. But core inflation measures that capture underlying price pressures in the economy were right on the bank’s 2-per-cent target.
Meanwhile, GDP data has been surprisingly weak. The economy contracted 0.1 per cent on an annualized basis in the first quarter of this year, following a 1-per-cent contraction the previous quarter. That back-to-back decline has sparked a debate about whether Canada is in a recession.
You can be sure Mr. Macklem will be asked for his opinion about the R-word in the press conference after the rate announcement.
If he emphasizes the weakness in the GDP data and the risks around upcoming trade negotiations with Washington and Mexico City, financial markets will likely read this as dovish and trim expectations for a rate-hike later this year.
But if he focuses on the energy price shock and on more optimistic recent data points – such as the solid May employment numbers published on Friday – it could be read as hawkish.
There is no Monetary Policy Report accompanying this rate decision, so any market moving information will come from the announcement and the press conference.
Read more about today’s expected Bank of Canada decision.
