Bank of Canada holds key rate steady in fifth consecutive decision
The Bank of Canada kept its benchmark interest rate unchanged at 2.25% for a fifth consecutive decision, citing weaker-than-expected economic growth and geopolitical uncertainty. Governor Tiff Macklem noted inflation rose to 2.8% in April due to global oil price shocks but expects it to ease toward the 2% target, while warning of risks from U.S. trade policies and Middle East conflicts.
The Bank of Canada maintained its key interest rate at 2.25% on Wednesday, marking the fifth straight decision to hold steady amid economic turbulence. Governor Tiff Macklem stated that Canada’s economy performed weaker than anticipated in the first quarter of 2026, with U.S. trade policies and the war in Iran contributing to heightened geopolitical risks. Global oil prices, elevated by Middle East conflict, remain higher than the bank’s April forecast, pushing annual inflation to 2.8% in April. Macklem acknowledged the inflation spike but emphasized limited evidence of broader price pressures, indicating the central bank will monitor the situation closely. The bank now expects inflation to stabilize around 3% before gradually returning to its 2% target. Statistics Canada reported a 0.1% annualized decline in real GDP for the first quarter, following a 1.0% drop in Q4 2025, sparking recession discussions though economists argue the decline is too modest to confirm a downturn. Macklem cited a strong May jobs report and stable employment trends as signs of potential recovery in the second quarter, despite recent labour market volatility. The bank faces competing pressures: raising rates could slow growth further, while easing risks prolonged inflation. Macklem framed the decision to hold rates as a balance between these risks, emphasizing the need to prevent inflation from becoming entrenched. The central bank remains committed to its dual mandate of controlling inflation while supporting economic stability.
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