As widely expected, the Bank of Canada (BoC) delivered an expected hold at 2.25%, but the details suggested a more nuanced backdrop.

Indeed, the bank’s projections pointed to somewhat stronger medium-term growth despite a current weaker near-term momentum. That said, inflation was revised up for 2026, indicating that the disinflation path may not be perfectly smooth, while wage growth remains sticky in the 3% to 3.5% range. That said, the economy is cooling, but not enough to fully eliminate price pressures.

At the usual press conference, Governor Tiff Macklem struck a cautious and flexible tone. He stressed there is no preset path for rates and no “risk-free” policy choice, further reinforcing the bank’s data-dependent stance.

Of note, Macklem did not rule out further tightening: if energy prices stay elevated for longer, a rate hike could be needed. However, he also pushed back against acting too early, noting that existing slack in the economy should limit the pass-through of higher energy costs.

He also flagged a key risk: inflation expectations may not be as well anchored as before the COVID pandemic, even if confidence in the BoC’s credibility remains intact.

Additionally, Deputy Governor Carolyn Rogers said that trade tensions pose a more persistent long-term risk than oil, while reminding that households remain highly sensitive to inflation.

To sum up

This was a central bank in wait-and-see mode, but not leaning dovish. Inflation risks still tilt slightly to the upside, keeping early rate cut expectations in check while leaving the door open, at least conditionally, to further tightening.