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Essentials of Monetary Policy

The Bank of Canada Keeps Rates Unchanged with Risks Remaining Balanced

July 15, 2026
Randall Bartlett, Deputy Chief Economist • LJ Valencia, Economist

According to the Bank of Canada (BoC)

  • As expected, the Bank of Canada left its policy rate unchanged in July at 2.25%. The overnight rate has remained at the lower bound of the Bank’s estimated range for the neutral rate since October 2025.
  • In his Press Conference Opening Statement External link., Bank of Canada Governor Tiff Macklem outlined three key messages related to the interest rate decision.
  • First, economic growth is expected to resume in Canada, after stalling the past year as the economy adjusted to new tariffs, elevated uncertainty and slower population growth. The Bank anticipates real GDP to rebound by 2.5% q/q annualized in Q2 2026. Looking ahead, the Bank expects continued solid consumer spending, stable housing activity, a pickup in business investment (boosted in the near term by oil and gas), ongoing government spending and exports to continue to strengthen, albeit on a lower path (graph 1). After adjusting for historical revisions, downwardly revised growth in 2026 (0.7% vs 1.2% in April) has been broadly offset by upward revisions to 2027 and 2028.
  • Second, after hitting 3.2% y/y in May and likely remaining elevated in June, the Bank expects inflation in Canada to ease gradually, returning to the 2% target in early 2027 (graph 2). This forecast depends crucially on the assumption that oil prices come down and stabilize between US$70-US$75 per barrel (they were about US$10 per barrel higher on the morning of July 15). But while energy price related cost pressures are still working their way through broader consumer prices, this is being offset by excess economic slack putting downward pressure on price growth. Indeed, passthrough of higher energy prices to core inflation remains minimal, and the Bank has been clear that they “will not let higher oil prices become persistent inflation.”
  • Third, uncertainty remains high and two-sided, with upside risk to inflation originating form the ongoing conflict in Middle East and downside inflation risk from trade discussions with the US and domestic slack. These haven’t changed from recent rate announcements. However, the Bank did opt to drop the illustrative scenarios published in the April 2026 Monetary Policy Report External link.. It also chose to drop any reference related to the need for potential interest rate hikes or cuts from its communications.

Implications

While uncertainty remains elevated, the Bank of Canada’s commentary that accompanied the interest rate announcement was modestly more upbeat than those in recent months. Growth looks to have picked up recently and is relatively broad based. Lower oil prices since the June interest rate announcement and the July 1 review date for the Canada‑United States‑Mexico Agreement (CUSMA) having come and gone without incident are positive developments. That said, two-sided uncertainty around the inflation forecast continues to cloud the outlook. As such, we think the Bank of Canada is likely to balance these risks by remaining on the sidelines for the remainder of 2026.

2026 Schedule of Central Bank Meetings

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.