Bank of Canada holds key interest rate at 2.25%

The Bank of Canada kept its benchmark rate at 2.25%, a fifth consecutive hold, while warning it is watching inflation and weak growth risks.

The Bank of Canada kept its key interest rate unchanged at 2.25 per cent on Wednesday, extending its pause for a fifth consecutive decision as it weighs competing risks from inflation and a soft economy.

The hold was widely expected, according to CBC News, and comes as policymakers try to avoid either reigniting price pressures or adding strain to an economy already showing signs of weakness.

In its rate announcement, the central bank pointed to higher energy prices tied to the war in the Middle East as a source of inflation pressure, while saying there has been “limited evidence” so far that those costs are spreading more broadly through consumer prices.

“Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation,” the bank said.

Governor Tiff Macklem said after the announcement that the longer oil prices remain elevated, the greater the risk that those costs feed into the wider economy and force a policy response. Canada’s annual inflation rate rose to 2.8 per cent in April, and Macklem said the bank expects inflation to remain around three per cent before gradually moving back toward its two per cent target.

The central bank is also watching the impact of uncertainty from the trade war with the United States. Macklem said new U.S. tariff threats continue to weigh on the economy, even as Canada’s unemployment rate fell to a five-month low in May and hiring strengthened. He cautioned that labour market figures have been volatile and that there has been little net job growth since January.

That leaves the Bank of Canada in a narrow policy lane. Raising rates could help contain inflation but risk further slowing the economy, while cutting rates could support growth but make inflation more persistent.

“For now, holding the policy rate unchanged balances those risks,” Macklem said.

Recent growth data have added to the uncertainty. Statistics Canada reported that real gross domestic product contracted at a 0.1 per cent annualized pace in the first quarter of 2026, following a one per cent decline in the fourth quarter of 2025. Macklem said the economy is weak, but not clearly in recession, and the bank noted that growth is expected to resume in the second quarter.

The next moves will depend on whether inflation pressures from energy prices spread more broadly and whether trade-related uncertainty continues to drag on growth.