{"id":797948,"date":"2026-07-12T23:05:08","date_gmt":"2026-07-12T23:05:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/797948\/"},"modified":"2026-07-12T23:05:08","modified_gmt":"2026-07-12T23:05:08","slug":"bank-of-canada-expected-to-hold-as-monetary-policy-dilemma-fades","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/797948\/","title":{"rendered":"Bank of Canada expected to hold as monetary policy dilemma fades"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

The Bank of Canada building is on track to keep the policy rate at 2.25 per cent for the sixth consecutive time.Sean Kilpatrick\/The Canadian Press<\/p>\n

The Bank of Canada<\/a> is expected to remain in cruise control this week with lower oil prices and a string of positive economic data providing an easier backdrop for a stand-pat interest rate decision. <\/p>\n

Since the start of the U.S.-Iran war in February, the central bank has been pulled in two directions, creating what Governor Tiff Macklem has called a \u201cdilemma\u201d for monetary policy. <\/p>\n

The surge in global oil prices drove up headline inflation, raising the prospect that the bank might have to increase interest rates to stop price pressures from broadening. <\/p>\n

On the opposite side of the ledger, economic growth stumbled in the first quarter of the year, leading to chatter about a \u201ctechnical recession\u201d and questions about whether the central bank would need to lower borrowing costs to jumpstart economic activity.<\/p>\n

Renewed hostilities in Persian Gulf set back hopes for recovery of oil supply<\/a><\/p>\n

Heading into Wednesday\u2019s rate decision, the picture has improved on both fronts, leaving the bank comfortably on track to keep the policy rate at 2.25 per cent for the sixth consecutive time.<\/p>\n

Benchmark oil prices have fallen from above US$100 a barrel back into the US$70 range, close to where they were when the Strait of Hormuz was closed to tanker traffic in February.<\/p>\n

At the same time, Canadian economic data have shown green shoots heading into the summer. Gross domestic product rebounded 0.5 per cent in April after a small contraction in the first quarter; Canada\u2019s trade surplus hit a four-year high in May, with exports buoyed by high commodity prices; and the unemployment rate dipped to 6.5 per cent in June. <\/p>\n

The economy is hardly thriving, but recession-talk has been shelved. <\/p>\n

\u201cWe\u2019re comfortable where we are,\u201d Mr. Macklem said at a meeting of global central bankers in Sintra, Portugal, last week.<\/p>\n

\u201cWe\u2019re at 2.25, so we\u2019re kind of at the bottom end of our neutral range, providing a little bit of support [to the Canadian economy]. We think it\u2019s about the right level to keep inflation contained.\u201d<\/p>\n

Most economists see the BoC keeping rates unchanged for the next 12 months: poll<\/a><\/p>\n

Financial markets expect the central bank to remain on hold through the summer and fall, with one quarter-point hike partly priced in for December, according to Bloomberg data. <\/p>\n

That doesn\u2019t mean the central bank is out of the woods. The resumption of strikes between the United States and Iran over the past week has put energy markets on edge, leading to several sharp oil price moves. And uncertainty about U.S. trade policy continues to cloud Canada\u2019s economic outlook.<\/p>\n

On July 1, the Trump administration decided not to extend the United States-Mexico-Canada Agreement for another 16 years. The trade deal remains in place until 2036 and negotiations are expected to continue over the summer, but Washington\u2019s refusal to extend the deal lengthens the period of uncertainty for Canadian exporters and leaves the threat of higher tariffs in place should trade talks flounder.<\/p>\n

\u201cWe\u2019ve got to be humble. There\u2019s a lot of uncertainty out there. Those risks could shift quickly,\u201d Mr. Macklem said in Sintra. \u201cThe other part of our message is if the situation changes, we\u2019re prepared to take action.\u201d<\/p>\n

USMCA wasn\u2019t renewed. What\u2019s next for the North American trade deal?<\/a><\/p>\n

With no one expecting an interest-rate move on Wednesday, most of the focus will be on the central bank\u2019s quarterly monetary policy report, where it will update its forecast for economic growth and inflation. <\/p>\n

In the last MPR in April, the bank said it expected GDP to grow 1.2 per cent in 2026 and consumer-price-index inflation to average 2.3 per cent this year. <\/p>\n

Thomas Ryan, North America economist at Capital Economics, said he expects the bank to modestly trim its inflation outlook based on the quicker decline in oil prices than expected in the April MPR. That would reinforce the idea that inflation remains largely under control.<\/p>\n

Annual consumer price index inflation hit 3.2 per cent in May \u2013 the first time it\u2019s topped 3 per cent since late 2023 \u2013 as a result of rising gasoline prices. But core inflation measures, which exclude volatile items to capture underlying price trends, fell to around 2 per cent, with few signs that higher energy costs are bleeding into other prices and becoming generalized inflation. <\/p>\n

\u201cYou\u2019ve got a pretty soft underlying economy, so the risk of reigniting inflation pressures are there, but they\u2019re not that high,\u201d Mr. Ryan said. \u201cThere\u2019s not much pressure on the bank to really do anything over the next couple of meetings, barring another shock.\u201d <\/p>\n

U.S. Fed minutes show division over whether to hold or raise rates amid inflation concerns<\/a><\/p>\n

While the Bank of Canada appears to be settling into a holding pattern, expectations for U.S. interest rates have changed substantially as the United States has continued to churn out solid growth and hot inflation figures, while new U.S. Federal Reserve Chair Kevin Warsh has struck a more hawkish-than-expected tone in his early appearances.<\/p>\n

Markets have gone from pricing in rate cuts from the Fed this year to pricing in at least one hike in the fall, starting in September. <\/p>\n

This has strengthened the U.S. dollar against other currencies, including the loonie, which has declined nearly 4 per cent against the greenback since late April. The Canadian dollar had dipped to around 70 US cents in recent weeks, and is now trading at around 71 US cents. <\/p>\n

\u201cWe do expect it to strengthen a little bit, but the timing is a little bit more difficult to point out right now,\u201d Toronto-Dominion Bank economist Maria Solovieva said of the Loonie.<\/p>\n

\u201cAnother thing that is weighing structurally on the Canadian dollar is productivity \u2013 we are behind the U.S. on that. And what we\u2019re seeing currently in terms of flows of funds into U.S. assets supported by higher interest rate expectations is being offset in the Canadian dollar.\u201d <\/p>\n

A weaker foreign exchange rate increases the price of imported goods. But there would likely need to be a bigger and more sustained decline in the Canadian dollar before it would become an inflationary concern for the central bank, Ms. Solovieva said. <\/p>\n

The Bank of Canada does not target a specific exchange rate, focusing instead on keeping the annual rate of inflation at 2 per cent. <\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: The Bank of Canada building is on track to keep the policy rate…\n","protected":false},"author":2,"featured_media":797949,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-797948","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/797948","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=797948"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/797948\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/797949"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=797948"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=797948"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=797948"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}