By Promit Mukherjee
OTTAWA, July 15 (Reuters) – The Bank of Canada left its benchmark overnight rate unchanged at 2.25% on Wednesday as widely expected and said growth would strengthen in the second half of the year as inflation pressures eased.
The decision marked the sixth time in a row that the central bank has kept its key policy rate unchanged after an aggressive easing cycle last year that brought the rate down to the current level in October.
“Canada’s economy is showing signs of improvement. Growth is picking up and inflation is projected to ease gradually from its recent spike,” the bank said in its statement.
The bank slightly raised its growth forecasts for 2027 and 2028 but cut its 2026 projection to 0.7% from 1.2% in April, reflecting a weaker start to the year.
The BoC raised its 2026 inflation forecast to 2.5% from 2.3% in April, but said inflation should remain near the midpoint of its 1%-3% target range over the next two years.
The bank predicted the economy will grow by 2.5% on an annualized basis in the second quarter after stalling in the first quarter amid disruption caused by the Middle East conflict and uncertainty over U.S. trade policy.
“The data we have received since April have increased our confidence that the economy is indeed working its way through this period of global upheaval,” Governor Tiff Macklem said in prepared opening remarks to the press.
All 36 economists surveyed by Reuters had expected the central bank to hold rates, with a majority forecasting no change until at least July next year.
Money markets are pricing in a hold for the rest of the year.
The evolution of Canada’s trade relationship with the United States and the war in the Middle East remain the two most important risks to the outlook for inflation, the bank said in a quarterly monetary policy report.
“We’ve been looking through the direct effects of higher oil prices on inflation, but the longer they remain elevated, the bigger the risk they spill over to other goods and services. As we have said before, we will not let higher oil prices become persistent inflation,” said Macklem.
The Canadian dollar pared early gains and was trading down 0.05% to C$1.4062 against the U.S. dollar, or 71.11 U.S. cents. Yields on the two-year government bonds slipped further down 3 basis points to 2.627%.
(Reporting by Promit Mukherjee; Editing by Aurora Ellis and David Ljunggren)
