Bank of Canada signals possible interest rate cuts ahead, but holds key policy rate steady for now at 2.75%
Yahoo4 days ago
The Bank of Canada (BoC) held its overnight interest rate steady at 2.75 per cent on Wednesday in a move widely expected by economists. 'With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged,' the rate announcement says.
With the trade situation with the U.S. still 'fluid,' the BoC's latest Monetary Policy Report includes three scenarios for economic projections, once again avoiding offering a single forecast. One scenario is based on current tariff conditions and two alternatives assume better or worse outcomes in trade negotiations.
Ahead of the announcement, economists polled by Reuters were unanimous in their expectations for a BoC hold. Many have noted persistently high core inflation figures. But looking further ahead, opinions become more mixed — with 18 of 28 economists expecting a cut in September.
In a Monday note, BMO economist Robert Kavcic said there were 'very reasonable cases' by both monetary policy hawks and doves, with the hawks suggesting the last pair of cuts sought to 'front-run the downside economic risk from the trade war' and the doves arguing that 'optimism over a clean [trade] deal by August 1 seems to be fading.'
In its June decision the Bank also held its policy rate stable.
Watch Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers' press conference following the rate announcement this morning.
Follow Yahoo Finance Canada's live blog for news, updates and analysis of the Bank of Canada's interest rate announcement below.
BoC rate pause may spur fall housing activity, says Royal LePage CEO
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
BMO chief economist Porter: Those seeking cuts may need to be patient
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
Macklem on protectionism: The world is fragmenting
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
Rogers says defence spending boost could support Canada's productivity
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Macklem: 'Trust is going to be hard to restore' ahead of 2026 CUSMA renegotiation
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
Macklem stays cautious on future of rate cuts
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
BoC's cautious tone, rate-cut readiness could push loonie towards 1.39
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
'The Bank is inching closer to a cut': CIBC
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
Bank of Canada to cut rates twice more in 2025, bringing overnight rate to 2.25%: Vanguard Canada
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
Key takeaways from Macklem's opening statement
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC defines conditions for another rate cut
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC maintains focus on the usual tariff-era risks
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
Three scenarios in Monetary Policy Report
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
BoC: Uncertainty high, 'some resilience' in the economy, pressures on inflation
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
BANK OF CANADA HOLDS ITS POLICY RATE AT 2.75 PER CENT
The numbers behind this morning's BoC rate decision
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
How hawkish or dovish are Canada's central bankers?
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Odds heavily favour a BoC hold today. Here's what economists see for the rest of 2025
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
BoC forecasts may include 'a relatively-speedy return to the inflation target' and slower growth
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
With a third-straight hold expected today, CIBC is bullish on this Canadian 'yield trade'
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
BoC rate pause may spur fall housing activity, says Royal LePage CEO
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
BMO chief economist Porter: Those seeking cuts may need to be patient
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
Macklem on protectionism: The world is fragmenting
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
Rogers says defence spending boost could support Canada's productivity
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Macklem: 'Trust is going to be hard to restore' ahead of 2026 CUSMA renegotiation
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
Macklem stays cautious on future of rate cuts
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
BoC's cautious tone, rate-cut readiness could push loonie towards 1.39
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
'The Bank is inching closer to a cut': CIBC
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
Bank of Canada to cut rates twice more in 2025, bringing overnight rate to 2.25%: Vanguard Canada
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
Key takeaways from Macklem's opening statement
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC defines conditions for another rate cut
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC maintains focus on the usual tariff-era risks
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
Three scenarios in Monetary Policy Report
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
BoC: Uncertainty high, 'some resilience' in the economy, pressures on inflation
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
BANK OF CANADA HOLDS ITS POLICY RATE AT 2.75 PER CENT
The numbers behind this morning's BoC rate decision
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
How hawkish or dovish are Canada's central bankers?
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Odds heavily favour a BoC hold today. Here's what economists see for the rest of 2025
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
BoC forecasts may include 'a relatively-speedy return to the inflation target' and slower growth
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
With a third-straight hold expected today, CIBC is bullish on this Canadian 'yield trade'
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
With the trade situation with the U.S. still 'fluid,' the BoC's latest Monetary Policy Report includes three scenarios for economic projections, once again avoiding offering a single forecast. One scenario is based on current tariff conditions and two alternatives assume better or worse outcomes in trade negotiations.
Ahead of the announcement, economists polled by Reuters were unanimous in their expectations for a BoC hold. Many have noted persistently high core inflation figures. But looking further ahead, opinions become more mixed — with 18 of 28 economists expecting a cut in September.
In a Monday note, BMO economist Robert Kavcic said there were 'very reasonable cases' by both monetary policy hawks and doves, with the hawks suggesting the last pair of cuts sought to 'front-run the downside economic risk from the trade war' and the doves arguing that 'optimism over a clean [trade] deal by August 1 seems to be fading.'
In its June decision the Bank also held its policy rate stable.
Watch Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers' press conference following the rate announcement this morning.
Follow Yahoo Finance Canada's live blog for news, updates and analysis of the Bank of Canada's interest rate announcement below.
BoC rate pause may spur fall housing activity, says Royal LePage CEO
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
BMO chief economist Porter: Those seeking cuts may need to be patient
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
Macklem on protectionism: The world is fragmenting
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
Rogers says defence spending boost could support Canada's productivity
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Macklem: 'Trust is going to be hard to restore' ahead of 2026 CUSMA renegotiation
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
Macklem stays cautious on future of rate cuts
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
BoC's cautious tone, rate-cut readiness could push loonie towards 1.39
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
'The Bank is inching closer to a cut': CIBC
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
Bank of Canada to cut rates twice more in 2025, bringing overnight rate to 2.25%: Vanguard Canada
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
Key takeaways from Macklem's opening statement
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC defines conditions for another rate cut
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC maintains focus on the usual tariff-era risks
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
Three scenarios in Monetary Policy Report
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
BoC: Uncertainty high, 'some resilience' in the economy, pressures on inflation
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
BANK OF CANADA HOLDS ITS POLICY RATE AT 2.75 PER CENT
The numbers behind this morning's BoC rate decision
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
How hawkish or dovish are Canada's central bankers?
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Odds heavily favour a BoC hold today. Here's what economists see for the rest of 2025
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
BoC forecasts may include 'a relatively-speedy return to the inflation target' and slower growth
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
With a third-straight hold expected today, CIBC is bullish on this Canadian 'yield trade'
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
BoC rate pause may spur fall housing activity, says Royal LePage CEO
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
Although today's BoC rate pause was driven by tariff-related uncertainty, Royal LePage CEO Phil Soper says it could provide some reassurance to prospective homebuyers.
"For real estate markets, it's likely more people who need to upgrade their housing will decide they can wait no longer, spurring activity heading into the fall."
"Economic fundamentals, from strong employment to much improved affordability, are supporting conditions for growth in the housing market, along with material demand waiting in the wings."
BMO chief economist Porter: Those seeking cuts may need to be patient
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
In a note to clients, BMO chief economist Douglas Porter says the BoC is 'keeping the door fully open to the possibility of future rate cuts.' But Porter doesn't see good odds of that happening in September.
Because the BoC expects the economy to contract in Q2, he says, 'we will likely need two friendly CPI reports ahead of the next rate decision in September to meaningfully increase the chances of a cut at that time.' However, he cautions, two consecutive months of acceptable inflation data 'may be a tall hurdle, so those looking for cuts may need to pack their patience."
Porter also says the BoC's escalation and de-escalation scenarios are 'a nice way to handle the current either/or' of the trade war. 'There's simply too much lingering trade uncertainty for the BoC to be decisive on the outlook for now.'
Macklem on protectionism: The world is fragmenting
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
The uncertain state of global trade was once again front-and-centre in the Bank of Canada's latest rate announcement and Monetary Policy Report on Wednesday.
Speaking to reporters in Ottawa, Governor Tiff Macklem addressed the issue of rising protectionist sentiment in the United States and other countries.
"The world is fragmenting, and you know, that is going to have an impact," he said. "Some segments of society feel like they've lost out. That is having political consequences."
"President Trump has dramatically increased U.S. protectionism. The effective U.S. tariff rate with the agreements that have been reached has increased significantly, and that's going to have an impact on the world economy," Macklem added.
"Even before President Trump was elected, trade has been shifting."
Rogers says defence spending boost could support Canada's productivity
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Canada's substantial increase in defence spending will likely, in the long run, help productivity in Canada, says BoC Senior Deputy Governor Carolyn Rogers.
Prime Minister Mark Carney has committed to raising defence-related spending to the equivalent of five per cent of Canada's gross domestic product by 2035.
'What we want to see is those investments in our own economy so that they build our own capacity, [and] they generate some economic activity within Canada,' Rogers said. She noted the effects won't be immediate but said she's optimistic it will be net positive to productivity.
Macklem: 'Trust is going to be hard to restore' ahead of 2026 CUSMA renegotiation
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
North America's trilateral trade deal, known in Canada as the Canada-United States-Mexico Agreement (CUSMA), is due for review in 2026. Under current Canada-U.S. tariffs, a vast swath of goods compliant with this deal are exempt from levies.
In its "current tariffs scenario" outlined in its newly released Monetary Policy Report, the Bank of Canada estimates CUSMA-compliance at 95 per cent for non-energy exports.
"There is a sense that U.S. policy may well remain unpredictable. There is a sense that trust is going to be hard to restore," BoC Governor Tiff Macklem told reporters on Wednesday.
"I think some level of uncertainty will continue, and in the scenarios, particularly the current tariff scenario, and the escalation scenario, we do have a fair amount of uncertainty through much of the projection. It does diminish over time, but it's not falling off quickly."
U.S. President Donald Trump signed CUSMA during his first presidency in 2018.
Macklem stays cautious on future of rate cuts
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
Bank of Canada Governor Tiff Macklem remains cautious on commenting whether there will be a rate cut this year.
"Our future decisions are going to depend on what happens in the future," he said, adding: "We continue to proceed carefully."
"Given the unusual amount of uncertainty, we're continuing to put more weight on the risks, and we're ready to respond to new information," Macklem said.
BoC's cautious tone, rate-cut readiness could push loonie towards 1.39
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
"There's light at the end of the tunnel for the Canadian economy and the loonie, but it remains far off in the distance," said Karl Schamotta, chief market strategist at Corpay, in response to the Bank of Canada's rate pause.
In today's BoC announcement, Governor Tiff Macklem said that due to the unusual degree of uncertainty, the BoC has to put more weight on risks, consider a shorter horizon than usual, and be ready to respond to new information.
Schamotta says this "far from optimistic" economic outlook, paired with the Bank's readiness to resume easing, should keep the Canadian dollar under pressure, "potentially putting it on course to challenge the 1.39 mark before September, especially if the greenback resumes its appreciation."
'The Bank is inching closer to a cut': CIBC
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
CIBC economist Andrew Grantham sees hints the BoC is "inching closer to a cut" in the central bank's Monetary Policy Report released on Wednesday.
He points to a weaker estimate for economic growth in the second quarter from the Bank's policymakers.
"The Bank appears to be getting a little more comfortable with the notion that the Canadian economy will need the support from further interest rate cuts in the future," Grantham wrote in a report following today's rate announcement.
"However, it is clearly not there yet, and upcoming data will remain more important than today's slight change in language in determining if that support comes at the September meeting as we currently forecast."
Bank of Canada to cut rates twice more in 2025, bringing overnight rate to 2.25%: Vanguard Canada
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
The Canadian arm of mutual fund and exchange-traded fund giant Vanguard now expects the Bank of Canada to cut rates twice more in 2025, following Wednesday's decision to hold.
"Despite leaving rates unchanged, we expect the BoC to reduce its policy rate to 2.25 per cent by the end of the year, given a lower growth environment,' Vanguard Canada chief investment strategist Ashish Dewan stated in a news release after Wednesday's announcement.
"Although the 'uncertainty tax' has already shown signs of impacting the Canadian labour market and business investment, a 2.9 per cent year-over-year increase in CPI-median data in March, one of the BoC's preferred measures of inflation, coupled with uncertainty around the economic outlook from U.S. tariffs, gave the central bank reasons to pause rate cuts."
Key takeaways from Macklem's opening statement
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
On Canada-U.S. trade war:
"Some tariff agreements have been negotiated between the United States and its trading partners, and that has reduced the risk of a severe and escalating global trade war. Unfortunately, the tariffs in those agreements also suggest the United States is not returning to open trade."
No normal forecast:
"U.S. tariffs are still too unpredictable to be able to provide a single forecast for the Canadian economy."
The BoC once again opted against a conventional forecast due to ongoing U.S. tariff uncertainty. Today's Monetary Policy Report includes three scenarios. A "current view," and two more looking at an escalation or de-escalation.
Optimism on inflation:
"There are reasons to think that the recent increase in underlying inflation will gradually unwind. The Canadian dollar has appreciated, which reduces import costs. Growth in unit labour costs has moderated, and the economy is in excess supply."
"At the same time, tariffs impose new direct costs, which will be gradually passed through to consumers. In the current tariff scenario, upside and downside pressures roughly balance out, so inflation remains close to two per cent."
A clear consensus to hold, for now:
"There was clear consensus to hold our policy rate unchanged."
"If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC defines conditions for another rate cut
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
From the rate announcement: "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate."
BoC maintains focus on the usual tariff-era risks
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the rate announcement says. "These include: the extent to which higher U.S. tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve."
Three scenarios in Monetary Policy Report
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
The latest BoC Monetary Policy Report once again excludes a base case. Instead, there will be a "current tariff scenario based on tariffs in place or agreed as of July 27" as well as "two alternative scenarios —one with an escalation and another with a de-escalation of tariffs."
BoC: Uncertainty high, 'some resilience' in the economy, pressures on inflation
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
"With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged," the rate announcement says. "We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade."
BANK OF CANADA HOLDS ITS POLICY RATE AT 2.75 PER CENT
The numbers behind this morning's BoC rate decision
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
Here are the latest data the Bank of Canada has to guide its interest rate decision this morning.
The removal of the carbon tax in many Canadian provinces continued to bring down year-over-year inflation figures in June, but not as much as in May. Overall inflation increased to 1.9 per cent, but the BoC's preferred core inflation measures remained elevated.
CPI: 1.9 per cent (up from 1.7 per cent in May)
CPI-median: 3.1 per cent (up from 3 per cent in May)
CPI-trim: 3 per cent (unchanged from May)
Canada's labour market surprised observers in June, with job gains and the unemployment rate both defying pessimistic expectations.
Jobs: Net gain of 83,100 jobs to Canada's economy
Unemployment rate: 6.9 per cent (down 0.1 percentage point from May)
Canada's economy shrank 0.1 per cent in April, with trade tensions that month very apparent in the manufacturing sector. Economists nonetheless generally agree that the data did not indicate anything catastrophic.
April GDP: 0.1 per cent decline from March (consensus was for no change)
Preliminary May GDP growth: 0.1 per cent monthly drop
The next GDP data release takes place tomorrow.
How hawkish or dovish are Canada's central bankers?
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Just like the "bulls" and "bears" of the stock market, central bank policy is often described in animalistic terms.
Simply put, "dovish" central bankers tend to support lower interest rates, valuing low unemployment and a strong economy over keeping inflation down.
"Hawkish" policymakers tend to favour higher interest rates to keep inflation low, even if it means sacrificing some economic growth, consumer spending, and jobs.
RBC Capital Markets has built a dashboard that analyzes the Bank of Canada's press releases, summaries of governing council deliberations, parliamentary testimonies, monetary policy reports, financial system reviews, statements, and speeches with an AI-based language tool.
Here's a look at how hawkish or dovish members of the Bank of Canada's governing council have been in their communications over the past year.
Odds heavily favour a BoC hold today. Here's what economists see for the rest of 2025
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
The BoC is widely expected to hold its policy rate today, with a recent poll giving just seven per cent odds of a quarter-point cut from Canada's central bank.
What about the rest of 2025? Here's what some economists have to say about today's decision and beyond:
CIBC's Ali Jaffery and Avery Shenfeld expect a hold from the BoC today, followed by cuts in September and December.
"Our prime minister is publicly musing about tariffs becoming the permanent state of affairs, and there appears little in the way of short-term fiscal support from Ottawa to alleviate the economic pain," they wrote in a recent research report.
"We would be surprised if they didn't recognize that the economy is going to need some rate relief until fiscal policy is a more active participant in the fray."
"We're expecting the Bank of Canada to leave the overnight rate unchanged again on Wednesday," RBC's Claire Fan and Abbey Xu wrote in a report last week.
"Sticky inflation readings, a weakening but relatively resilient economic backdrop, and prospects of larger fiscal spending, are reasons why we do not expect the BoC will cut again in this cycle."
TD Bank's Maria Solovieva says recent data "don't signal a collapse, but they don't suggest strength either." For her, better-than-expected June jobs figures "sealed a hold" from the Bank of Canada today.
"The real question now is whether it stays on hold in September and beyond," Solovieva wrote last week. "For now, markets are only pricing in half a cut by year-end."
Over at BMO, chief economist Doug Porter says the odds of a rate cut today are "not zero," given the threat of U.S. tariffs.
"At this point, there is a bit less than a 50 per cent chance of even one cut priced in for the rest of 2025," he wrote in a July 25 report. "We lean to the dovish side of the market, with a somewhat pessimistic view on the prospect for U.S. tariffs, and a relatively optimistic view on underlying inflation."
National Bank's Taylor Schleich is also predicting a third straight hold from the BoC today.
"Unlike the prior two decisions, there's little doubt about this one," he wrote last week. "Those who had earlier been expecting a cut in July, us included, were dealt a blow this month when hiring was reported to have surged in June and underlying inflation failed to moderate."
"To us, the disinflationary pressures associated with marginal economic slack will outweigh tariff-related cost pressures which should keep all-items CPI contained and moderate core inflation," Schleich added.
"Our outlook is consistent with the BoC coming off the sidelines again, and with very little easing priced, a bet on further cuts offers an attractive risk-reward profile.'
BoC forecasts may include 'a relatively-speedy return to the inflation target' and slower growth
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
In its last Monetary Policy Report, the BoC gave two potential scenarios for the evolution of U.S. trade policies, and their expected impact on the economy.
Against an equally uncertain backdrop today, Karl Schamotta, chief market strategist at payments firm Corpay says the economic risks are still tilted to the downside. He says these include Canada's exposure to private sector demand in the U.S., and a long-term slump in the housing market.
"If the Bank publishes an updated set of forecasts this morning, the outlook could incorporate a relatively-speedy return to the inflation target along with a slowing in growth—a mix that would remain consistent with at least one more rate cut by early 2026," Schamotta wrote in his morning newsletter on Wednesday.
"We're not confident they will: three months ago, the Bank opted to publish a set of scenarios in lieu of its traditional forecasts, and this may happen again."
With a third-straight hold expected today, CIBC is bullish on this Canadian 'yield trade'
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
Earlier this month, CIBC Capital Markets flagged growing momentum behind a 'yield trade' from GICs (guaranteed investment certificates) to Canadian dividend stocks. That call should remain in play, with the BoC widely-expected to hold interest rates steady for a third meeting in a row today.
GICs surged in popularity when the central bank began raising its trend-setting policy rate in March 2022 from COVID-19-era lows. Now, the tables have turned, with the BoC policy rate 225 basis points lower than last summer, following seven cuts from the central bank.
'We are still early in the trade, and with further unwinding in GICs expected through the remainder of 2025, there is still a powerful fund flow support for high dividend-yielding Canadian equities,' CIBC's Ian de Verteuil wrote in a note to clients.
He breaks down which sectors he sees benefiting. Read more here.
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