BoC holds interest rate steady amid oil volatility, improving economy
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- Bank of Canada held its benchmark interest rate at 2.25% for the sixth consecutive decision, with the rate on hold since October 2024
- Tiff Macklem said the current level remains "appropriate" to manage both inflation upside risks and economic downside risks, and that the bank is "prepared to adjust monetary policy as needed"
- Brent crude jumped from ~US$72 in early July to ~US$85 after US-Iran military strikes resumed, though still well below the US$120 peak from April
- Canadian CPI hit 3.2% in May — the first time above the 1-3% control band since late 2023 — driven by spring gasoline prices
- BoC lowered its 2026 GDP growth estimate to 0.7% from 1.2% after an unexpected Q1 contraction, but raised 2027 and 2028 projections to 1.8% each and expects 2.5% annualized growth in Q2
- BoC projects headline inflation falling to ~2.5% by August and returning to its 2% target by early 2027, "based on the assumption that oil prices are around US$75 per barrel"
- Trump administration declined on July 1 to extend the USMCA for another 16 years, moving the agreement into annual reviews through 2036 with the threat of withdrawal or higher tariffs intact
Why it matters: Borrowers get no immediate relief as the BoC holds at 2.25% for a sixth straight meeting, even with May CPI at 3.2% breaking above the bank's own 1-3% control band. The BoC's path back to 2% inflation by early 2027 rests on oil staying near US$75/barrel, a premise Brent's jump to US$85 now directly undermines.
