Economists expect the Bank of Canada to hold its benchmark interest rate steady for the fifth straight time when it meets Wednesday, but its messaging could shed light on how it is navigating ongoing geopolitical uncertainties.
The central bank held its policy rate at 2.25 per cent when it last met in April. Bank of Canada governor Tiff Macklem at the time did not rule out future adjustments depending on how risks play out.
He had said “monetary policy may need to be nimble” as the central bank watches effects from the war in Iran on energy prices, along with the outcome of the upcoming review of the Canada-United States-Mexico Agreement.
Financial market odds for another rate hold on Wednesday stood at around 95 per cent as of Friday, according to LSEG Data & Analytics.
RBC senior economist Claire Fan said economic data released since the April decision “has not been particularly optimistic,” but Friday’s jobs report showing a decline in the national unemployment rate has somewhat balanced that out.
“We don’t really expect there will be a lot of actual actions when it comes to interest rates, so their language — particularly in terms of how they recognize the confluence of data that’s been released since their last meeting — is the thing to watch,” Fan said in an interview.
She added officials will likely reiterate their message of needing to stay flexible but also cautious when it comes to future rate moves.
“For now, being on the sideline is the most prudent when you are driving in the fog,” said Fan.
“There simply isn’t enough information currently for the Bank Canada … to be able to make a reasonable or meaningful judgment in terms of really how that growth or inflation trade-off will shape out.”
Statistics Canada’s latest GDP data last month indicated the country is in a technical recession, meeting the definition of two quarterly contractions in a row.
The first quarter saw an annualized decrease of 0.1 per cent, though Fan said many economists believe the overall picture doesn’t resemble previous economic downturns which have been characterized by deeper, more persistent and “broad-based” declines.
Still, the economy is currently in “no fit state for higher rates” given that weakness, said Bradley Saunders, North America economist at Capital Economics.
He said the Bank of Canada struck a “decidedly hawkish tone” when it kept the policy rate steady in April, as Macklem warned the rate could be tweaked if oil prices continued to rise as the U.S.-Iran war drags on.
Saunders said the governor is likely to keep his messaging similar this time around.
However, the “downside surprise to first-quarter GDP growth and limited passthrough of higher oil prices to core inflation so far gives the Bank of Canada scope to keep interest rates on hold,” he said in a note.
“While global oil benchmarks have traded below US$100 in recent weeks amid hopes for a lasting end to the war, policymakers will be acutely aware that conflict could restart in earnest at any point.”
Last month’s inflation report said the country experienced the fastest pace of price hikes in almost two years. Higher gas prices driven mainly by the war in Iran pushed the annual rate of inflation up to 2.8 per cent in April, according to StatCan.
That came as the Bank of Canada’s closely watched core inflation metrics cooled more than expected in the month.
On Friday, StatCan reported that the national unemployment rate fell to 6.6 per cent in May, down from 6.9 per cent in April. It said the labour market rebounded with a surprise gain of 88,000 jobs, partially offsetting a bigger drop in employment since the start of the year.
CIBC senior economist Andrew Grantham noted the jobless rate was still high enough to put downward pressure on inflation, adding further backing to the view that the Bank of Canada will stay on hold.
“Further evidence of tightening within the labour market and an acceleration in core inflation would be needed for us to change that view,” he said.
This report by The Canadian Press was first published June 8, 2026.
