Bank of Canada holds rates, sees few signs energy prices broadly fueling inflation

OTTAWA - The Bank of Canada on Wednesday left its key interest rate unchanged as expected and said it was seeing limited evidence that higher energy prices were fueling broad-based inflation.

But Governor Tiff Macklem reiterated that the bank would not hesitate to raise rates if need be to keep inflation in check.

Wednesday's decision marks the fifth consecutive meeting at which the BoC has left its key policy rate at the 2.25% level, as an array of factors have complicated the economic outlook.

The Iran war, which has sent gasoline prices soaring, is squeezing household budgets, though Canada, as a net exporter of crude oil, is taking in more revenues.

"So far there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices," the bank said in its rate announcement.

"Governing Council is continuing to look through the war's near-term impact on headline inflation but will not let higher energy prices become persistent inflation."

Data last month showed Canada's economy posted a surprise contraction in the first quarter versus the year before, making it two straight ‌quarters of annualized decline, which some economists call a technical recession.

Macklem though said that the economy had basically been flat over the last year.

"Recession is not the word I would use. I would describe the economy as weak," he told a press conference.

Economists said the bank was in no hurry to move on rates.

"We view today's communication as highlighting a very patient central bank that has plenty of time to wait and see how risks to the economy play out," said Andrew Grantham, a senior economist at CIBC Economics.

A Reuters poll of 34 economists had expected the bank to sit on the sidelines and more than 80% predicted it would stay on hold throughout the year.

Money markets, however, are still pricing in one 25-basis-point rate hike in December.

Canada's overall inflation rate in April rose to 2.8% and Macklem said the bank expected it to hover around 3% before gradually easing toward the 2% target.

Macklem said the Middle East war posed a dilemma for monetary policy makers. Raising rates to dampen inflation could further slow the economy while easing rates to support growth increases the risk of persistently higher inflation.

"For now, holding the policy rate unchanged balances those risks," he told reporters.

The Canadian dollar held onto earlier gains after the announcement and was up 0.3% against the U.S. dollar, trading at C$1.3903 to the greenback, or 71.79 U.S. cents.

Economists see the upcoming review of the North American free trade deal - the United States-Mexico-Canada Agreement - as the biggest uncertainty hanging over the economy.

Macklem reiterated that if the U.S. imposed significant new trade restrictions, the bank might have to cut rates. If on the other hand higher energy prices started leading to generalized inflation, "there may be a need for consecutive rises in the policy rate."

(Reporting by David Ljunggren; Editing by Dale Smith, Nick Zieminski and Mark Porter)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 10, 2026 at 8:45 AM.