The Bank of Canada is widely expected to leave its key overnight interest rate unchanged at 2.25% during its June 10 policy meeting, according to a Reuters survey of economists.

All 34 economists surveyed anticipated no change in rates next week, while more than 80% expect the central bank to maintain its current policy stance throughout the remainder of 2026.

The outlook reflects a balancing act between rising inflation pressures and a domestic economy that continues to show signs of weakness.

Inflation Rises but Remains Within Target Range

Canada’s inflation rate accelerated to 2.8% in April from 2.4% in March, largely driven by higher energy costs linked to disruptions in global oil markets.

Despite the increase, inflation remains within the Bank of Canada’s target range of 1% to 3%.

Policymakers are also encouraged by signs that core inflation measures have softened, suggesting that underlying demand conditions remain relatively subdued.

Many economists believe the recent inflation increase is primarily the result of external energy shocks rather than broad-based economic overheating.

Previous Rate Cuts Provide Flexibility

The Bank of Canada aggressively eased monetary policy between June 2024 and October 2025, lowering rates by a cumulative 275 basis points.

Those reductions were designed to support economic activity as growth slowed and inflation pressures moderated.

The substantial easing already delivered gives policymakers room to pause and assess incoming data without feeling immediate pressure to either cut or raise rates.

Economy Continues to Face Challenges

Canada’s economy remains under pressure despite some recent positive developments.

The country entered a technical recession in the previous quarter, marking its first recession since the pandemic period.

Although May employment data showed stronger-than-expected job gains, economists believe the broader economy remains far from full employment and continues to require support from accommodative financial conditions.

CIBC Chief Economist Avery Shenfeld noted that while higher oil prices may temporarily lift core inflation, the increase is unlikely to justify tighter monetary policy in an economy still struggling to regain momentum.

Trade Uncertainty Remains a Major Risk

Another key concern for policymakers is uncertainty surrounding Canada’s trade relationship with the United States.

The United States-Mexico-Canada Agreement (USMCA), which protects most Canadian exports from tariffs, is scheduled for review in July.

Given Canada’s heavy dependence on U.S. trade, any disruption or uncertainty surrounding the agreement could weigh on business investment and economic growth.

Recent discussions between Canadian and U.S. officials have been described as constructive, but economists remain cautious until greater clarity emerges.

Potential Rate Hikes Shift to 2027

While most economists see no changes this year, expectations begin to diverge further into the future.

More than 40% of survey participants anticipate that the Bank of Canada may begin raising rates in early 2027 if inflation pressures become more persistent.

Some analysts warn that prolonged energy market disruptions could eventually challenge the central bank’s credibility on inflation.

Scotiabank economist René Lalonde noted that if geopolitical tensions persist and inflation expectations become unanchored, policymakers may ultimately need to adopt a more restrictive stance.

Outlook

The Bank of Canada appears poised to look through current energy-driven inflation pressures and maintain its benchmark rate at 2.25% through the remainder of 2026.

With inflation still inside the target range, economic growth remaining fragile, and trade-related uncertainty lingering, policymakers are expected to prioritize economic stability over preemptive tightening.

However, if elevated energy prices persist and inflation becomes more entrenched, discussions about future rate hikes could gain momentum heading into 2027.