Interest Rates · Historical report

Bank of Canada held policy rate at 2.25% as weak growth met energy-driven inflation risk

In deliberations published June 24, 2026, the Bank of Canada detailed why it left its policy interest rate unchanged at 2.25% on June 10: the economy remained weak, while higher energy prices created a risk that inflation could broaden.

By Grant Sullivan · Source dated June 24, 2026 · Published July 22, 2026

June decision balanced opposing economic pressures

The Bank of Canada’s Governing Council held the policy rate at 2.25% on June 10, 2026, according to a June 24 summary of its deliberations. The decision came as policymakers assessed an economy operating below potential alongside an inflation outlook complicated by the Middle East conflict and higher energy costs.

For business borrowers, the unchanged setting meant the Bank did not alter its benchmark borrowing-cost environment at that meeting. But the account of deliberations underscored that the direction of future rate decisions remained contingent on whether weakness in demand and trade, or broader price pressures, became more significant.

Council members said the choice was difficult because a lower rate could support activity but increase the chance that elevated inflation becomes established in price-setting and expectations. Conversely, a rate increase could limit wider price spillovers from energy but add pressure to an already-soft economy. The Bank said it was prepared, for the time being, to look past the immediate inflation effects of higher energy prices.

Canadian activity showed weakness but signs of a second-quarter pickup

Canada’s GDP edged down 0.1% in the first quarter, below the 1.5% expansion projected in the April Monetary Policy Report. The Bank identified a 2.5% fall in government spending, mainly associated with weapons systems, as the largest surprise. Consumer spending rose 1.4%, while housing activity declined further amid uncertainty and slower population growth.

The Bank’s flash estimate pointed to 0.4% month-over-month GDP growth in April. Energy exports helped lift exports by 0.2%, and motor-vehicle as well as machinery-and-equipment exports posted solid increases. Policymakers also cited continued consumer spending, stabilizing housing activity, and indications of improved business investment and hiring intentions.

May employment rose unexpectedly and the unemployment rate fell to 6.6%, though the Council cautioned that the employment figures had been volatile. Employment was little changed since the beginning of 2026, and unemployment had moved within a range of 6.5% to 7%. The Council characterized the economy as weak and carrying labour-market slack, but not clearly in recession.

Inflation data and trade uncertainty set the watchpoints

CPI inflation increased to 2.8% in April, close to the Bank’s expectation of around 3%. Policymakers attributed the increase to gasoline prices, higher margins and the removal of the effect from the prior April’s elimination of the consumer carbon tax from the 12-month comparison. Outside energy, the Council saw inflation pressures as generally contained.

Both CPI-trim and CPI-median were near 2% in April, while the share of CPI components rising by more than 3% moved closer to its historical average. Food inflation remained elevated but had eased, and rent inflation had slowed further. The Bank said it would watch for evidence that higher energy costs were moving more broadly into other costs and consumer prices.

The Council also identified the ongoing CUSMA review as a major uncertainty. It said a favourable result could restore some certainty and potentially support investment, whereas a prolonged or unfavourable outcome could deepen hardship in trade-affected sectors and affect jobs and investment more widely. New US trade restrictions could call for a lower policy rate, the Bank said; sustained generalized inflation from the Middle East conflict could instead warrant consecutive increases.