Bank of Canada Holds Key Interest Rate at 2.25% for Sixth Consecutive Meeting

After a period of economic weakness, Canada’s economy is showing signs of renewed growth. At the same time, inflation remains a concern, particularly as rising energy prices could put renewed pressure on consumer prices. These factors will influence the Bank of Canada’s approach to interest rates as it assesses whether the economic recovery will continue and inflation will ease.

Bank of Canada Holds Interest Rate at 2.25%

The Bank of Canada announced that it would be holding its key lending rate, which has a direct impact on interest rates, at 2.25%. This marks the sixth consecutive meeting at which the Bank has left its policy interest rate unchanged.

The last time the central bank made a move on interest rates was in October 2025, when it cut its key overnight lending rate by 25 basis points.

Bay Street was expecting the Bank of Canada to hold interest rates at 2.25%. In fact, all 36 economists surveyed ahead of the interest rate announcement expected Canadian interest rates to be kept at 2.25%. Looking ahead, the majority of economists don’t believe the central bank will announce a rate change until at least July 2027.

After the Canadian economy entered a technical recession in the first half of the year, some economists thought the Bank of Canada could announce an interest rate cut to help juice growth. However, the Canadian economy has adjusted to new tariffs and a changing labour force.

Canada’s gross domestic product (GDP) fell 0.1% in the fourth quarter of 2025 and edged down another 0.1% in the first quarter of 2026. The central bank had previously expected first-quarter GDP to rise by 1.5%.

The Bank of Canada remains optimistic about the Canadian economy, saying there are “clear signs” that economic growth has returned in the second quarter. Canada’s central bank now expects second-quarter GDP growth of 2.5%.

What Is Happening with Inflation in Canada?

Lowering interest rates when the economy is improving could energize inflation, which is something the Bank of Canada wants to avoid. In May, inflation increased to 3.2%. That increase was largely blamed on higher energy prices due to the war in Iran.

In June though, Canada’s inflation eased to 2.8%. This was due to lower gas prices due to optimism about a ceasefire in the Middle East. Diplomatic talks helped oil prices ease in June, resulting in a 10.2% monthly drop in the price of gas.

Inflation could rebound in July if renewed tensions in the Middle East push oil and gasoline prices higher. At the start of July, West Texas Intermediate (WTI), the North American benchmark for crude oil, was trading at US$69.98 per barrel. By July 20, the price had risen to US$85.39 per barrel—its highest trading range since mid-June—as tensions in the Middle East escalated again.

While headline inflation is above the Bank of Canada’s target of two percent, underlying inflationary pressures are slowing. This potential source of optimism is why Bay Street thinks the Bank of Canada will stay on the sidelines for the rest of 2026. The central bank is scheduled to announce its next interest rate decision on September 2.

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