BoC keeps rates on hold as expected at 2.25%; Canada’s economy is showing signs of improvement

• GC judges the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target, in line with the MPR projections.

Middle East/Oil:

• There are still important risks and uncertainties related to the war in the Middle East and US trade policy.
• Since the April MPR, global economic prospects have been dented by higher oil prices stemming from the Middle East conflict.
• Oil prices are still lower than their peak in April but the situation in the Middle East remains volatile. The path for global inflation is highly dependent on how the conflict unfolds.

Inflation:

• Growth is picking up and inflation is projected to ease gradually from its recent spike.
• CPI inflation is expected to stay elevated in June and then ease gradually in the coming months, returning to around 2% in early 2027, although this forecast is dependent on the path for oil and gasoline prices.
• Inflation is forecast to average around 2% in 2027 and 2028, albeit with some monthly fluctuations because of base-year effects.

GDP/Economy:

• The Bank projects global GDP growth will slow to 2.75% in 2026, mostly because of the effects of the Middle East conflict, and recover to around 3.25% in 2027 and 2028.
• Following GDP growth of 0.7% in 2026, projects the economy will grow by 1.8% in both 2027 and 2028.
• Financial conditions in Canada have eased since April and global equity markets have been buoyant.
• Recent indicators point to continued solid consumer spending. Housing activity has been weak but looks to be stabilizing.