Bank of Canada Holds Policy Rate at 2.25%

The Bank of Canada held its target for the overnight rate at 2.25%, judging the current policy setting appropriate to sustain the recovery and bring inflation back to the 2% target as growth picks up and inflation is projected to ease gradually from a recent gasoline-driven spike, while risks tied to the war in the Middle East and US trade policy remain high. After holding at 2.75% in July 2025, the central bank cut by 25 basis points in September and again in October to 2.25%, where it has remained since. The Bank Rate was left at 2.5% and the deposit rate at 2.20%. In Canada, the central bank said there are clear signs growth resumed in the second quarter, estimated at 2.5%, with consumer spending solid, housing weak but stabilizing, and labour market conditions still soft; CPI inflation rose to 3.2% in May mainly because of higher gasoline prices, while inflation excluding gasoline was 2.2% and core measures remained close to 2%, with headline inflation expected to stay elevated in June and then ease gradually, returning to around 2% in early 2027. Financial conditions have eased since April, and higher US than Canadian bond yields have contributed to a weaker Canadian dollar. Globally, higher oil prices linked to the Middle East conflict have dented growth prospects and left the inflation path highly dependent on how the conflict unfolds, although AI investment continues to support activity in a growing number of countries. Governing Council said it will continue to asses