The Bank of Canada (BoC) is expected to keep its benchmark interest rate unchanged at 2.25% at its policy meeting on Wednesday. The decision comes as concerns about the country's core inflation surge begin to subside. While inflation briefly crossed the 3% target in May, analysts see the surge as temporary as it was driven entirely by gasoline prices.
Canada's uncertain economic growth has also reinforced the decision to keep interest rates on hold. The country's economy technically entered a recession in late March before rebounding strongly in April. The uncertainty has led policymakers to take a wait-and-see approach to avoid surprising the market.
In addition to domestic factors, trade tensions with the United States have also weighed on business confidence in Canada. The introduction of sectoral tariffs by the US administration and the uncertain future of the North American Free Trade Agreement (NAFTA) have dampened corporate investment activity and hiring by local companies.
All 36 economists surveyed by Reuters forecast no interest rate changes by the BoC until July next year. Global money markets have also pegged the probability of any easing or tightening of Canadian monetary policy until the end of this year to zero, a sharp change from expectations of a rate hike last month.
The meeting on Wednesday will be followed by the release of the quarterly Monetary Policy Report and a news conference by BoC Governor Tiff Macklem. Investors are now awaiting the central bank’s new projections for Canada’s GDP growth and long-term inflation target amid a challenging global economic environment.
