(Updates with governor comments in 5th paragraph, CIBC comment in 8th paragraph.)
The Bank of Canada left its policy rate unchanged on Wednesday, in line with expectations, maintaining a cautious approach as policymakers assessed a mixed economic outlook and easing inflation pressures.
This was the sixth policy meeting in which Canada's central bank held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.
The BoC's message is that it can remain patient, allowing time to assess incoming economic data before making any further policy adjustments, but stressing it can either cut or hike rates as the situation requires.
"Governing Council judges the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target," wrote the BoC in its policy statement, adding it's "prepared to adjust monetary policy as needed."
Governor Tiff Macklem said in his opening statement that the key messages were that Canada's growth has resumed after a year of stagnation, supported by resilient consumers and adaptable businesses despite US trade pressures. Inflation is expected to ease gradually, but uncertainty remains elevated amid Middle East tensions and ongoing US trade talks.
With core inflation at 1.6% year over year and BoC-focused median and trimmed measures at or close to the central bank's 2.0% target, inflation dynamics offer little support for a more hawkish policy stance.
The economy remains weak, but so far doesn't appear to warrant further BoC stimulus. After contracting in late 2025 and early 2026, it rebounded more strongly than expected in April, while unemployment eased to 6.5% in June.
The BoC "noted that the economy is improving and core inflation measures remain close to target, showing little sign of spillover from elevated energy prices," added CIBC Economics after the central bank's statement. CIBC sees the BoC leaving rates unchanged for the remainder of this year.
As expected, the BoC tweaked its 2026 gross domestic product growth and inflation forecast to reflect a weaker economy at the start of the year and higher inflation as a result of surging energy prices amid the Middle East conflict.
Wednesday's new Monetary Policy Report said the BoC now predicts GDP growth of 0.7% this year from April's 1.2% estimate. GDP is seen rising 1.8% next year and in 2028.
The new MPR sees average 2026 inflation at 2.5%, up from April's 2.3% forecast. It predicts inflation at 2.0% next year and 2.1% in 2028.