The Bank of Canada is widely anticipated to keep its policy interest rate unchanged for the fifth straight meeting, as recent economic data reveals a weaker performance than previously forecasted. Financial markets and economists surveyed by Bloomberg expect the central bank to maintain the rate at 2.25% during its upcoming decision on Wednesday.
Weak GDP Data Dampens Rate Hike Expectations
Statistics Canada's first-quarter gross domestic product report showed the economy contracted slightly for a second consecutive quarter, cooling expectations for rate hikes this year despite global oil price surges. Only two out of 15 economists surveyed predict a rate increase in 2026, while financial markets price in a potential hike by December.
Central Bank's Stance and Economic Outlook
Following April's decision, Governor Tiff Macklem stated that the current benchmark rate appears "appropriate" to help the economy adjust to U.S. tariffs and bring inflation back to target. However, he warned that if energy prices lead to generalized inflation, consecutive rate increases might be necessary. Benjamin Reitzes, managing director at Bank of Montreal, expects the central bank to soften its hawkish language from the previous meeting, noting that the macroeconomic backdrop has evolved unfavorably for further tightening.
Economists broadly agree that the data does not indicate a recession. Preliminary figures suggest the economy improved in the second quarter, with a flash estimate of 0.4% growth in April and a drop in the unemployment rate to 6.6% in May, alongside a significant employment increase of 87,800 jobs.
Recession Concerns Dismissed
Andrew Grantham, senior economist at CIBC, noted that the Bank of Canada will likely push back against recession claims, as the GDP decline is small and within revision ranges, with signs of a rebound in Q2. However, he conceded that the average growth rate of 1% for the first half of the year is slightly weaker than forecasted. Senior Deputy Governor Carolyn Rogers also cautioned against overinterpreting the GDP data, emphasizing that a "technical recession" label requires looking beyond a single indicator.
Bloomberg's survey, conducted from June 2 to June 5, found that nine economists see a 50% chance of a recession this year, while five consider it unlikely.
