{"id":691732,"date":"2026-06-08T14:54:38","date_gmt":"2026-06-08T14:54:38","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/691732\/"},"modified":"2026-06-08T14:54:38","modified_gmt":"2026-06-08T14:54:38","slug":"bank-of-canada-likely-to-hold-rates-as-economy-stagnates","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/691732\/","title":{"rendered":"Bank of Canada likely to hold rates as economy stagnates"},"content":{"rendered":"

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

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<\/p>\n

The Bank of Canada<\/a> is expected to keep interest rates steady this week as the Canadian economy struggles to grow and trade uncertainty clouds the outlook. <\/p>\n

The global oil price shock, driven by the war in the Middle East, has pushed headline inflation in Canada to the top end of the central bank\u2019s target zone. <\/p>\n

At the same time, recent data show the Canadian economy stalled through the winter and early spring, stoking fears of recession. And uncertainty about the coming review of the continental trade agreement is expected to weigh on economic activity heading into the summer. <\/p>\n

With both upside risks to inflation and downside risks to growth, the central bank is widely expected to bide its time and keep the policy rate at 2.25 per cent for the fifth consecutive rate decision.<\/p>\n

Decoder: A technical recession, but with rising living standards?<\/a><\/p>\n

The key question on Wednesday is how Governor Tiff Macklem and his team talk about the balance of risks. This will shape market expectations for monetary policy decisions later this year, and influence bond markets and borrowing costs. <\/p>\n

\u201cI do think that the balance is tilted a little bit more towards some concerns on growth, as opposed to the worries about inflation that we\u2019re seeing in the United States or in the euro area,\u201d said Claire Fan, senior economist at the Royal Bank of Canada. <\/p>\n

\u201cInflation has actually slowed quite a bit,\u201d she said, referring to core measures of inflation that capture underlying price pressures. \u201cWhile the macro data hasn\u2019t looked so resilient.\u201d<\/p>\n

Financial markets are currently pricing in one quarter-point rate hike from the Bank of Canada later in the year, according to Bloomberg data. In March, markets were briefly pricing in as many as three rate hikes in the back half of the year. <\/p>\n

At the last rate decision in April, much of the focus was on the inflationary risks stemming from the closure of the Strait of Hormuz, which has pushed global energy prices sharply higher. Mr. Macklem warned that if oil prices remained high and began bleeding into other prices, the bank may need to raise interest rates \u201cconsecutive\u201d times. <\/p>\n

He also cautioned that the bank could cut rates if the review of the United States-Mexico-Canada agreement, or USMCA, went sideways and the U.S. increased tariffs on Canadian goods. <\/p>\n

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

Bank of Canada Governor Tiff Macklem after an interest rate announcement in Ottawa on April 29.Spencer Colby\/The Canadian Press<\/p>\n

Since then, the inflation picture has remained relatively subdued. <\/p>\n

The jump in the price of gasoline pushed headline consumer price index inflation up to 2.8 per cent in April, from 2.4 per cent the month before. But the bank\u2019s preferred measures of core inflation were essentially right on the 2-per-cent target.<\/p>\n

\u201cThere has been a pretty clear divergence between headline inflation and most measures of what central bankers would refer to as underlying inflation, and so the need for any sort of monetary policy tightening has diminished greatly,\u201d Royce Mendes, head of macro strategy at Desjardins, said. <\/p>\n

\u201cThe economy is so sluggish that it\u2019s not internally generating a lot of upside inflationary pressures at the moment,\u201d he said.<\/p>\n

Oil prices have declined from their April peak, with benchmark Brent and West Texas Intermediate crude prices falling below US$100 a barrel. The path forward for oil prices is largely contingent on whether the U.S. and Iran can reach a permanent peace agreement and reopen the Strait of Hormuz. <\/p>\n

While the inflation data have come in better than expected, recent economic growth numbers show an economy that\u2019s struggling in the face of U.S. tariffs, uncertainty around trade negotiations, a historic decline in population and a weak housing market. <\/p>\n

Opinion: Is Canada really in a recession? Why the scary R-word says too much and too little<\/a><\/p>\n

Two weeks ago, Statistics Canada reported that gross domestic product contracted 0.1 per cent on an annualized basis in the first quarter of 2026 \u2013 well below the 1.5-per-cent growth the Bank of Canada and Bay Street economists expected. That follows a 1-per-cent annualized decline in the fourth quarter of 2025. <\/p>\n

Two quarters of falling GDP is sometimes referred to as a \u201ctechnical recession,\u201d although most Bay Street economists played down the term, preferring to look at the depth, breadth and duration of a contraction before declaring a recession. <\/p>\n

The May labour market numbers, published by Statscan on Friday, looked much sturdier. The country added nearly 88,000 jobs<\/a> last month and the unemployment rate fell to 6.6 per cent from 6.9 per cent the month before. <\/p>\n

\u201cJust when you think Canada is crumbling amid a string of negative data points, things reverse. We\u2019ve seen this story a few times in the past year. The economy isn\u2019t booming, but it isn\u2019t falling apart, either,\u201d Benjamin Reitzes, managing director of Canadian rates at Bank of Montreal, wrote in a note to clients following the jobs data. <\/p>\n

\u201cThis report should ease BoC worries about the economy somewhat after the negative GDP print. Still, the back-to-back negative GDPs, lower oil and tame core CPI point to a less hawkish BoC \u2026 than in April,\u201d he wrote. <\/p>\n

Ultimately Canada\u2019s central bankers, like other Canadians, are watching to see the outcome of the trade talks between Ottawa and Washington that are expected to heat up over the next month and continue through the summer. <\/p>\n

The USMCA is formally up for review on July 1, although officials from all three countries have said they expect negotiations to continue past that date. If Ottawa, Washington and Mexico City don\u2019t agree to extend the agreement for 16 years, it will remain in place but move to a period of annual reviews. Any of the countries can withdraw from the deal with six months notice.<\/p>\n

\u201cUncertainty is unusually elevated, and there are many possible outcomes,\u201d Mr. Macklem said after the April rate decision. \u201cMonetary policy may need to be nimble.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: The Bank of Canada building in Ottawa in April. The central bank is…\n","protected":false},"author":2,"featured_media":691733,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[2428,2416,2429,4,2408,2430,28,103,2407,2422,2423,2418,2409,2406,101,526,192,2421,2414,2441,2410,2411,2420,2417,149,983,2431,2413,2436,2437,2439,2434,2438,2432,2435,2412,2425,2426,111,2424,2433,2415,74,2427,2419,194,965,2440],"class_list":["post-691732","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","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\/us\/wp-json\/wp\/v2\/posts\/691732","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=691732"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/691732\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/691733"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=691732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=691732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=691732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}