"After a year of weakness, Canada's economy has begun to recover."
In its accompanying report, the bank said the economy is "showing signs of improvement" after a year of weakness.
It now expects the economy to grow at an annualized rate of 2.5 percent in the second quarter of 2026. That is a solid bounce from the weak start to the year, which dragged the full‑year growth forecast down to 0.7 percent. The bank also raised its growth outlook for 2027 and 2028 to 1.8 percent each year, up from earlier estimates.
The central bank dropped language from its previous statement that hinted at possible rate hikes because of the Middle East conflict or cuts if the U.S. imposed major new trade restrictions.
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The decision to hold rates steady reflects the bank's assessment that the current policy setting is appropriately balancing the risks of inflation and economic weakness. With the economy showing signs of improvement but still facing headwinds from past weakness, the central bank is comfortable waiting for more data before making any moves.
Higher oil prices have been pushing inflation up, but the bank thinks that effect is fading.
Based on futures market data from July 9, the bank projects Brent crude will decline to $70 per barrel by the end of 2027.
There are risks on both sides. Businesses could pass on higher input costs, which would keep inflation higher for longer. On the flip side, tighter global financial conditions or a weaker‑than‑expected domestic recovery could pull inflation down faster.
Benjamin Reitzes, a macro and rates strategist with Bank of Montreal, summarized the bank's mood, stating: "The recent run of firmer data has the BoC a bit more upbeat, but the BoC is not convinced economic growth is poised to accelerate consistently yet, especially given the uneven pattern over the past 18 months."
The central bank believes 2.25 percent is the right spot for now. Financial markets are pricing in a small 20‑basis‑point increase by December, but that is not a sure bet. Two‑year Canadian government bond yields fell to 2.83 percent, while the Canadian dollar ticked up to C$1.4051 against the U.S. dollar.
Servus Credit Union's chief economist, Charles St‑Arnaud, commented: "The bank is in no hurry to change its policy rate." He added that his team remains confident the central bank will keep its policy rate unchanged for the rest of 2026.
The Bank of Canada's cautious stance reflects lingering uncertainty. Despite brighter growth forecasts, the uneven recovery over the past 18 months and external risks - such as trade policy shifts - keep policymakers from committing to a direction. The muted market reaction, with bond yields edging lower, suggests investors also expect a prolonged pause.
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