Bank of Canada policy-makers agree to keep monetary policy nimble amid U.S. trade restrictions, high energy prices
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- Bank of Canada held its key rate at 2.25% on June 10 and agreed to keep policy "nimble" against U.S. trade restrictions, energy prices, or both hitting simultaneously, per minutes released Wednesday.
- Governor Tiff Macklem said the BoC sees limited evidence that higher energy prices are fueling broad-based inflation, noting inflationary pressures outside energy are generally contained.
- May headline inflation hit 3.2%, the first breach above the BoC's 1–3% target range in 29 months, driven by Middle East war-spiked gasoline prices.
- The governing council faced a "dilemma" between weak growth (arguing for cuts) and inflationary pressure, choosing not to overreact but leaving the door open to hike if CPI proves persistent.
- Money markets that had priced in a December rate hike have since pared those bets and now expect the BoC to hold rates steady through year-end.
- The Canadian economy slipped into a technical recession in Q1, but the council said it was "not clearly in recession" — operating with excess supply and labor-market slack — and appeared to be returning to growth.
- Council members flagged the upcoming United States-Mexico-Canada Free Trade Agreement review as an important source of uncertainty that could trigger policy action if it turns out negative.
Why it matters: Canada's central bank is stuck between weak growth and energy-driven inflation that just broke above its target range for the first time in 29 months, while explicitly naming the USMCA review as a potential trigger for action. The BoC's "nimble" stance means its next move depends on which shock — trade, energy, or both — materializes first, and rate-setters have reserved the option to hike rather than cut if inflation proves sticky.
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