The Bank of Canada is widely expected to hold its policy rate at 2.25% today, its seventh consecutive hold and the longest stretch of inaction since the easing cycle that took the rate from 3.00% in January 2025 down to its current level by the end of October. On the surface, a seventh hold reads as a story about stability. The forecast underneath it tells a more complicated one.
A Growth Forecast That Doesn’t Match Its Own Data
The Bank’s policy rate history since January 2025 shows the shape of the problem: a rapid easing cycle through October, followed by eight months of a flat line at 2.25% while the growth outlook underneath it has moved in the opposite direction of the headline data.
Dashed segment reflects that today’s decision had not been announced at time of writing; consensus points to a seventh consecutive hold at 2.25%.
Canada’s economy grew at a 2.5% annualized pace in the second quarter, ahead of the Bank’s own April projection of 1.5%. Rather than raising its full-year forecast to match, the Bank cut it, to 0.7% from 1.2%. The math only works if the Bank expects the second half of the year to slow sharply, which is exactly what its guidance implies: the trade war escalation, including the tariff measures taking effect this month, is expected to erode the growth that showed up in the Q2 number.
The Oil Conditionality Nobody Is Pricing
Inflation is the other half of the story. Headline CPI reached 3.0% in July, and the Bank revised its 2026 inflation forecast up to 2.5% from 2.3%, with core measures ranging from 1.9% to 2.7%. Governor Macklem has been explicit about the mechanism: persistent increases in oil prices, tied to the ongoing Middle East conflict, could require consecutive rate hikes, though he has stressed that scenario is not the Bank’s base case and that the Bank will not mechanically respond to a temporary oil spike.
Markets are currently pricing just over 2 basis points of additional tightening by year-end, which is functionally zero. That pricing assumes the oil scenario Macklem flagged does not materialize. If Strait of Hormuz-linked supply disruption pushes crude higher into the fourth quarter, the gap between what the Bank has said it would do and what the market has priced is the thing worth watching, not today’s hold itself.
July’s labour market data supports the case for patience rather than urgency. Canada added 75,000 jobs, and the unemployment rate fell to 6.4%, its lowest level since July 2024, even as wage growth slowed. A labour market this firm gives the Bank room to hold without downside risk to its mandate, which is precisely why today’s decision is expected to be uneventful. The forecast behind it is not.