The Bank of Canada held its policy rate at 2.25% for a sixth straight meeting and cut its 2026 growth forecast to 0.7% from 1.2%. Officials expect inflation to ease from a recent peak above 3%, blaming the spike mostly on gasoline prices tied to the Middle-East conflict.
The Bank of Canada left its main interest rate unchanged at 2.25% on Wednesday and sharply downgraded its growth forecast for the year. This was the sixth consecutive decision in which policymakers kept the overnight rate steady, holding the line as the economy runs below potential.
Growth forecast cut, but the bottom may be in
The central bank now anticipates 0.7% expansion for 2026, down from its previous 1.2% call. It noted that first-quarter gross domestic product was roughly unchanged from the same period in 2025. Policymakers said the worst of the sluggishness might be over, according to the central bank: "After a year of weakness, Canada's economy is showing signs of improvement."
Canada's economy contracted for two straight quarters, and in three of the last four. Yet neither the bank nor most economists call the country recessionary, because the downturn has been limited in breadth. The bank expects 2.5% annualized growth in the second quarter after the prior quarter's 0.1% decline, and a 1.5% jump in the third.
Gasoline drives the inflation spike
The recent rise in inflation — accelerating to 3.2% in May — is mostly attributable to gasoline prices, stemming from the U.S.-Iran conflict that has thwarted oil-tanker traffic through the Strait of Hormuz. Excluding gasoline, total inflation has stayed close to the 2% target. The bank expects inflation to ease toward 2.5% in the second half of the year.
Gold and the loonie hold steady
Gold barely moved on the decision. Spot gold in Canadian dollars last traded at C$5,712.21 an ounce, up 0.24%, while in U.S. dollars it sat at US$4,062.20, up 0.26%.
USD/CAD weakened ahead of the decision. The pair's break of last week's 1.4115 low brought sharp losses down to support around the 1.4050 congestion, with room for a deeper pullback toward 1.4000 later, according to Continuum Economics.
Sources: MarketScreener, Kitco News, Continuum Economics (snippet-based)
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