Bank of Canada Officials Split on Rebound Sustainability
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- Bank of Canada held its benchmark rate at 2.25% for a sixth straight time at its July 15 decision, with released minutes showing officials were "confident" about the Q2 rebound but divided over its sustainability beyond the near term.
- Governing council members cited higher global oil prices, a recovering housing market, and a pickup in exports as evidence firms were adapting to US tariffs, expecting annualized real GDP growth of 2.5% in the second quarter.
- Inflation ticked up to 3.2% in May before easing to 2.8% in June, with the bank attributing the cooling partly to the prospect of peace between the US and Iran reducing price pressures.
- Bank of Canada officials acknowledged that renewed Middle East hostilities kept inflation risks potent, warning that sustained oil price increases could spill over into broader prices and "likely require a monetary policy response."
- The July deliberations occurred before Washington's latest threat of 50% tariffs on a range of Canadian goods, though council noted "the possibility of new U.S. tariffs was an ever-present downside risk to growth."
- Most economists still expect the Bank of Canada to leave its policy rate on hold for the remainder of the year, with Statistics Canada set to release its early Q2 GDP estimate alongside May GDP figures on Friday.
Why it matters: The internal split suggests the BoC cannot confidently declare victory on its dual mandate — officials see inflation abating and growth firming, but disagree on durability. The fact that July deliberations preceded Washington's fresh 50% tariff threat means the council's stated risks are already outdated, leaving the September decision shaped by data the bank hasn't yet fully digested.
