Viewpoint: Bank of Canada decision — rates unchanged as policymakers look to balance risks

Bank of Canada decision — rates unchanged as policymakers look to balance risks

The Bank of Canada’s (BoC) policy-setting Governing Council opted to leave the policy overnight interest rate unchanged at 2.25% for the fifth consecutive meeting, as was universally expected by market watchers.

The communications shared today (June 10, 2026) accompanying the decision (the statement¹ provided below for ease of reference) leaned dovish from my lens, somewhat pushing against the more hawkish tilt in the marketplace that continues to price in the prospect of rate hikes by year-end.

On the domestic economy, it was noted that economic growth in Q1 undershot the BoC’s expectations (-0.1% versus its forecast of +1.5% in the April Monetary Policy Report²) and while recent data suggest a rebound in the current quarter, “the economy is expected to remain in excess supply.” There was also a noteworthy addition to the final paragraph of the statement that “economic activity has been weak and uncertainty about US trade policy persists” (emphasis mine).

With respect to the job market, May’s strong Labour Force Survey³ was (rightly) discounted due to the volatile nature of the data and the fact that employment is “little changed since the start of the year”, while the unemployment rate has remained rangebound.

Finally, while headline inflation has increased due to the surge in energy prices (“as expected”), the BoC judges that “[s]o far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices” as “[m]easures of core inflation have moved down to around 2% and the share of CPI components growing above 3% is close to its historical average.” This does not exactly suggest there is a growing discomfort with inflation in Canada, and the BoC reiterated that it is “continuing to look through the war’s near-term impact on headline inflation” — though it “will not let higher energy prices become persistent inflation.”

The opening statement⁴ by BoC Governor Macklem to the post-decision press conference highlighted this “dilemma” for monetary policy at the moment. Easing monetary policy to support growth “increases the risk that inflation becomes persistent,” which they are explicitly against; however, raising rates to combat inflation “could further slow the economy” that is already seeing weakness in interest rate-sensitive areas of housing and business investment.

For now, it is judged that holding the policy rate at its current levels “balances those risks”, however, Macklem emphasized the need for policy to be “nimble” given that risks could shift, given that “uncertainty is unusually elevated” — “as the outlook evolves, we stand ready to respond as needed.”

Specifically, he noted that if the U.S. were to impose new trade restrictions on Canada, “we may need to cut the policy rate further to support economic growth”, while if higher energy prices “start leading to ongoing generalized inflation” there may be “a need for consecutive increases in the policy rate” — the need for “consecutive” hikes was a carryover from April. It is likely trying to communicate a move closer to restrictive territory from the current level, which is at the bottom of the estimated range for “neutral” (the April 29, 2026, Monetary Policy Report² again showed that the BoC estimates the “neutral” range is 2.25% to 3.25%). Other issues such as the structural changes facing the economy, shifting trade relationships, the impact of artificial intelligence (AI) and changing demographics were flagged as complicating the assessment of the economy and determining the appropriate policy settings.

The bottom line is that the Bank of Canada is emphasizing the difficulties in determining the appropriate path for policy against a highly uncertain backdrop that is creating legitimate two-sided risks to the outlook. For the here and now, however, there appears to be more focus on the potential downside risks to growth than the upside risks to inflation, which suggests there is not quite the appetite for policy tightening that the market anticipates. Instead, the BoC appears likely to be patient and wait for any indications of knock-on price pressures — of which it is explicitly seeing “limited evidence” so far.

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David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP). He provides macroeconomic guidance to GCLP and its affiliates. Additionally, he is a portfolio manager of GCLP’s multi-asset portfolios and funds and works closely with GCLP’s Directed Outcomes team.

¹ Bank of Canada, Press Releases, Bank of Canada maintains the policy rate of 2¼%, June 10, 2026, https://www.bankofcanada.ca/2026/06/fad-press-release-2026-06-10/
² Bank of Canada, Publications, Monetary Policy Report—April 2026, April 29, 2026, https://www.bankofcanada.ca/publications/mpr/mpr-2026-04-29/
³ Government of Canada, Statistics Canada, The Daily, Labour Force Survey, May 2026, June 5, 2026, https://www150.statcan.gc.ca/n1/daily-quotidien/260605/dq260605aeng.htm
⁴ Bank of Canada, Press, Speeches and appearances, Monetary Policy Decision Press Conference Opening Statement, June 10, 2026,
https://www.bankofcanada.ca/2026/06/opening-statement-2026-06-10/

STATEMENT

Bank of Canada maintains the policy rate at 2¼%

FOR IMMEDIATE RELEASE | Media Relations | Ottawa, Ontario

June 10, 2026

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The conflict in the Middle East is now in its fourth month. The resulting increases in energy prices and disruptions in global supply chains are weighing on global economic growth and pushing up inflation. At the same time, the US administration continues to propose new tariffs and trade policy uncertainty remains elevated.

In the United States, economic growth remains solid, supported by consumption and AI-related investment. In the euro area, growth is subdued, with higher energy prices weighing on activity. China’s economic growth continues to be supported by strong exports.

Canadian financial conditions have loosened since the April Monetary Policy Report. Global equity markets have been buoyant and bond yields remain volatile. The Canadian dollar has weakened against the US dollar and other currencies.

In Canada, GDP edged down by 0.1% in the first quarter, weaker than expected at the time of the April MPR. Consumer spending grew 1.4% but government spending unexpectedly declined. Housing activity also declined and business investment remained weak. Exports fell while imports rose strongly as inventories were rebuilt. Employment was up in May, but looking through monthly volatility, employment in Canada is little changed since the start of the year. The unemployment rate continues to fluctuate in the 6 ½%-7% range with the most recent reading at 6.6% in May.

Recent data suggests that growth will resume in the second quarter but, even with some rebound, the economy is expected to remain in excess supply.

As expected, CPI inflation rose in April, reaching 2.8%. The increase reflects energy prices, both higher oil prices and the impact of the elimination of the consumer carbon tax falling out of the 12-month rate of inflation. So far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices. Measures of core inflation have moved down to around 2% and the share of CPI components growing above 3% is close to its historical average. Food price inflation moderated but remains high, and shelter inflation continued to slow. With global oil prices still elevated—roughly $10 a barrel above our April MPR assumptions—total inflation is expected to hover around 3% in the near term before easing gradually towards 2%.

Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. Economic activity in Canada has been weak and uncertainty about US trade policy persists. The conflict in the Middle East is ongoing and oil prices remain elevated. Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.

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Published: June 10, 2026