The Bank of Canada held its policy rate at 2.25% while projecting Canada's economy to grow 2.5% in Q2 and CPI inflation to ease gradually after rising to 3.2% YoY in May, reflecting an improving growth outlook alongside temporary energy-driven inflation pressures.

• The Bank of Canada left the overnight rate unchanged at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20%, judging that the current level remains appropriate to support the recovery while returning inflation to its 2% target.

• Canada's economy is showing signs of improvement after a weak period. The Bank estimates GDP growth of 2.5% in Q2 2026 following a choppy year, and projects full-year growth of 0.7% in 2026 before accelerating to 1.8% in both 2027 and 2028 as economic slack is gradually absorbed.

• Consumer spending has remained solid, housing activity appears to be stabilizing, export growth has resumed, and business investment is expected to strengthen modestly, particularly in the oil and gas sector. Government spending is also expected to support economic activity.

• Labour market conditions remain soft despite the improving growth outlook. The unemployment rate was 6.5% in June and has remained within a 6.5%–7.0% range since the end of 2024, reflecting continued economic slack.

• CPI inflation increased to 3.2% YoY in May, primarily because of higher gasoline prices linked to the Middle East conflict. Excluding gasoline, inflation was 2.2% YoY, while measures of core inflation remained close to the Bank's 2% target.

• The Bank expects headline inflation to remain elevated in June before easing gradually over the coming months, returning to around 2% in early 2027. Inflation is projected to average around 2% in both 2027 and 2028, although the outlook remains dependent on oil and gasoline prices.

• The Bank noted that global risks remain elevated, particularly from the conflict in the Middle East and US trade policy. It expects global GDP growth to slow to 2.75% in 2026 before recovering to around 3.25% in 2027 and 2028, and reiterated that it is prepared to adjust monetary policy as needed if the outlook changes.

• Monetary Policy Report: July 2026