The Bank of Canada has announced that it will keep its benchmark interest rate unchanged at 2.25 per cent, citing ongoing economic uncertainty, elevated global energy prices, and the continued impact of geopolitical tensions in the Middle East.
In its latest monetary policy decision released Wednesday, the central bank maintained the target for the overnight rate at 2.25 per cent, with the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent.
The decision comes as policymakers navigate a challenging global environment marked by rising oil prices, disrupted supply chains, and continued uncertainty surrounding U.S. trade policies. The Bank noted that the conflict in the Middle East, now entering its fourth month, has contributed to higher energy costs and inflationary pressures worldwide while weighing on economic growth.
Globally, economic conditions remain mixed. The United States continues to experience solid growth driven by consumer spending and investment linked to artificial intelligence, while growth in the eurozone remains subdued due to elevated energy costs. China’s economy continues to receive support from strong export activity.
In Canada, economic performance has been weaker than anticipated. The country’s gross domestic product contracted by 0.1 per cent during the first quarter of 2026, missing expectations outlined in the Bank’s April Monetary Policy Report. Consumer spending posted modest growth, but declines in government spending, housing activity, exports, and business investment weighed on overall economic output.
Labour market conditions have also remained soft. While employment increased in May, overall job growth has been largely stagnant since the beginning of the year. The national unemployment rate stood at 6.6 per cent in May and has fluctuated between 6.5 and seven per cent in recent months.
Despite the sluggish economic environment, inflation remains a key concern. Canada’s Consumer Price Index rose to 2.8 per cent in April, driven largely by higher energy prices and the removal of the federal consumer carbon tax from annual inflation calculations. However, the Bank said there is currently limited evidence that higher energy costs are spreading broadly across the economy.
Core inflation measures have eased toward the Bank’s two per cent target, while shelter inflation continues to moderate. Food prices remain elevated but have shown signs of slowing growth.
Looking ahead, policymakers expect economic activity to recover modestly during the second quarter, although the economy is still projected to operate below its full capacity. The Bank also warned that global oil prices remain significantly above earlier forecasts, which could keep headline inflation near three per cent in the short term before gradually returning to the two per cent target.
The Governing Council emphasized that while it is looking beyond the immediate inflationary effects of higher energy prices, it remains prepared to act if those pressures become more persistent. Officials reiterated their commitment to maintaining price stability and protecting Canadians from prolonged inflation risks amid ongoing global economic disruptions.