A recent Reuters survey indicates that the Bank of Canada is expected to keep its overnight interest rate unchanged at 2.25% at its policy meeting on July 15, maintaining this level through next year. With inflationary pressures largely under control and the economy entering a moderate recovery, the monetary authorities currently have no urgency to adjust interest rates.
According to Reuters, although Canada’s inflation rate climbed to 3.2% in May, exceeding the central bank’s target range of 1% to 3% for the first time since December 2023, the market expects price increases to slow in the coming months. Compared to other major economies, Canada’s inflation concerns are relatively mild. The Bank of Canada last cut interest rates in October 2025, when it aimed to mitigate the impact of US tariffs on economic growth.
Now, benefiting from rising oil prices boosting export revenues and a recovering Labor market, the Canadian economy has emerged from a technical recession, significantly reducing the urgency to adjust policy rates. There is a consensus in academia regarding the critical point for raising or lowering interest rates. In a survey conducted from July 7 to 10, all 36 economists surveyed unanimously predicted that the Bank of Canada would keep its interest rate unchanged at 2.25% next week. More than half (19 out of 30) further predicted that this borrowing cost would remain frozen until at least July 2027.
Avery Shenfeld, chief economist at CIBC Capital Markets, pointed out that there are clear signs of economic recovery in the spring, so there is absolutely no need to cut interest rates; at the same time, given that the economy still has spare capacity and core inflation indicators are stable, there is no need to seriously discuss the issue of raising interest rates at present. The median survey suggests that the central bank’s next move will be to raise interest rates, but this is not expected to happen until the second half of next year.
Adam Schickling, senior economist at Vanguard, analyses that only a significant shift in energy prices to the real economy, or a loss of anchor for inflation expectations, could trigger a rate hike; conversely, a decline in trade policy, a broad economic contraction, or a surge in unemployment could force the central bank to cut rates. Data projects that Canada’s average inflation rate will be 2.6% in 2026, while core inflation will remain stable at 2.1%. This will make Canada more resilient to external shocks than other developed countries.
The unemployment rate is expected to remain around the current level of 6.6% in 2026. Meanwhile, Canada’s economic recovery is expected to continue, with the average economic growth rate projected to rebound sharply to 1.8% in 2027 from 0.7% this year. Despite the Trump administration’s refusal last week to extend the Canada-Mexico-Canada Agreement (CUSMA), the market remains optimistic. The trade agreement, signed during Trump’s first term, still has 10 years remaining and is subject to annual review before its expiration, unless the three countries agree to amend and renew it. Of the 17 economists who responded to additional questions, all but one believed the chances of the US withdrawing from the agreement were extremely low.
Nathan Janzen, assistant chief economist at Royal Bank of Canada (RBC), emphasized that from an economic rationale perspective, maintaining the agreement is strongly supported by all parties involved, as the trade agreement brings substantial mutual benefits to the economic systems along both the Canada-US and US-Mexico borders.