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Essentials of Monetary Policy

Bank of Canada Policy Rate Left Unchanged as Two-Sided Risks Remain

June 10, 2026
Randall Bartlett, Deputy Chief Economist • LJ Valencia, Economist

According to the Bank of Canada (BoC)

  • As expected, the Bank of Canada held its policy rate in June at 2.25%. The overnight rate remains at the lower bound of the Bank’s estimated range for the neutral rate.
  • The clearest takeaway from the press release External link. and press conference opening statement External link. is that risks to the inflation outlook remain two-sided.
  • So far, pass-through of higher energy costs to other prices has been limited. But with global oil prices still elevated and about US$10 a barrel above April 2026 Monetary Policy Report External link. (MPR) assumptions, the Bank expects total inflation to hover around 3% in the near term, then gradually ease toward 2%. Governing Council continues to look through near-term impact of higher energy prices on headline inflation, but won’t let them lead to persistent inflation. That said, we expect some upward revisions to the Bank’s inflation outlook in July, consistent with changes to our forecast since the April MPR (graph 1).
  • The Bank also addressed the weaker-than-expected growth to start the year, with real GDP contracting 0.1% annualized in Q1 2026 versus the 1.5% advance expected in April (graph 2). The Bank highlighted broad weakness in the Canadian economy and labour market, despite some recent good news on the latter. The Bank still expects growth to resume in Q2, supported by consumption spending and stable housing activity, but shares our view that the economy remains in excess supply.
  • Finally, the BoC stands ready to respond as needed. If the US significantly increases tariffs on Canada, it may need to cut the policy rate to support growth. Alternatively, if persistently higher energy prices start leading to more broad-based inflation, there may be a need for consecutive increases in the policy rate. However, this comes against the backdrop of significant structural changes in the Canadian economy, including AI adoption and a shrinking population, which complicates the Bank’s assessment.

Implications

Given the two-sided risks to the inflation outlook, the Bank of Canada appears comfortable leaving rates on hold for now. We continue to expect the policy rate to remain unchanged until 2027.

That said, we believe the Bank is discounting some tailwinds to the Canadian economy. First, it didn’t mention the $3.1B in cheques sent to low- and middle-income households by the federal government on June 5, nor the 25% increased quarterly GST/HST credit payments over the next five years. Together, these measures should help support consumption among Canada’s most vulnerable households. Second, greater government consumption and investment also went unnoted, despite their likely meaningful contribution to domestic demand over the outlook. As a result, we think the Bank is likely underestimating the potential contribution to growth from household and government spending than may ultimately materialize (graph 3).

2026 Schedule of Central Bank Meetings

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