Bank of Canada Holds Rates at 2.25% as Growth Outlook Improves

This marks the sixth consecutive meeting where policymakers opted to maintain the status quo, choosing to keep borrowing costs stable while navigating an economy still operating below its full potential. The decision aligns with unanimous expectations from economists surveyed by The Wall Street Journal, who largely anticipate the bank will remain on the sidelines for the remainder of the year.

Governor Tiff Macklem emphasized that the economy appears to be resuming its momentum following a period of contraction. Although Canada saw output decline in three of the last four quarters, the central bank maintains that the country has avoided a formal recession. Projections now point to a 2.5% annualized growth rate for the second quarter, fueled by the fading of temporary disruptions that hampered performance earlier in the year.

Inflation remains a central focus, having climbed to 3.2% in May due to surging gasoline prices tied to the U.S.-Iran conflict. However, the bank noted that price pressures on non-energy goods remain contained. Officials expect headline inflation to peak before gradually cooling toward the 2% target, provided that global geopolitical tensions do not escalate further. For now, the bank remains prepared to adjust policy should the current recovery falter against the backdrop of ongoing Middle Eastern instability.