Bank of Canada Holds 2.25% as Inflation Hits 3.2% — SkimNews
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- Bank of Canada held its policy rate at 2.25% on Wednesday, meeting market expectations, even as headline inflation rose to 3.2% in May from 2.8% in April — outside its 1-to-3% control range.
- Core inflation has been trending down, with CPI-trim at exactly 2% and CPI-median at 2.1%, allowing the Bank to attribute the headline spike to oil prices driven by the Iran war rather than broad price pressures.
- Interest-sensitive sectors aren't responding to current policy: a KPMG survey found 57% of Canadian companies have reduced, paused, or cancelled capital expenditures, and 42% have scaled back or paused R&D investment.
- Construction and housing remain weak — total construction investment hit $23.6-billion in April, still well below 2021 levels in constant dollars, while new building permits fell 1.7% in May despite new government housing policies.
- The Bank's Business Outlook Survey (published July 6) found oil and gas was the only sector showing strong investment intentions, boosted by commodity prices tied to the Iran war.
- The current 2.25% rate sits at the low end of the BoC's estimated neutral rate range (2.25% to 3.25%), yet the economy still shows excess capacity — making a rate cut, rather than a hike, the more likely next move.
Why it matters: At 2.25% — already the bottom of the neutral range — the Bank of Canada is running out of conventional room to stimulate. With 57% of companies cutting capex, core inflation cooling, and construction investment still below 2021 levels, the analysts make the contrarian case that a rate cut could come next even as headline inflation sits above 3%.
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