The Bank of Canada held its benchmark interest rate steady for a fifth consecutive decision on Wednesday as it tries to support a turbulent economy without letting prices rise unchecked.
Governor Tiff Macklem also said that while the economy is weak, he wouldn’t say it’s in a recession.
The central bank’s policy rate remains at 2.25 per cent after the hold, which was widely expected by economists.
Bank of Canada governor Tiff Macklem said in prepared remarks that the economy was weaker than expected in the first quarter of the year as U.S. trade policy and the war in Iran spur geopolitical uncertainty. Global oil prices — driven higher by the Middle East conflict — are meanwhile staying higher than first thought in the central bank’s April forecast.
“Against this backdrop, the Canadian economy has remained soft and inflation has increased,” Macklem said.
The central bank is mandated to keep a lid on inflation but also tries to support the economy in the face of headwinds like U.S. trade aggression.
Competing pressures like these put the central bank in a dilemma, Macklem said.
“Raising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk that higher inflation becomes persistent,” he said.
“For now, holding the policy rate unchanged balances those risks.”
Annual inflation rose to 2.8 per cent in April, in part because of the global energy shock. The Bank of Canada now expects inflation to hold around three per cent in the coming months before easing back toward the central bank’s two per cent target.
Macklem said there has so far been “limited evidence” that higher energy prices are passing through into broader inflationary pressures.
He said the Bank of Canada will keep looking through the short-term rise in inflation tied to the oil price shock. He also reiterated the central bank will act to prevent price pressures from becoming entrenched.
Core inflation — a group of metrics the Bank of Canada uses to track underlying price trends — has cooled in recent months despite the rising headline rate. Macklem said the central bank would be looking to see if those trends reverse course before considering the possibility of rate hikes.
“If we start to see core inflation drift up because higher energy prices are spreading, that is certainly something that would get our attention because that would suggest that CPI inflation is not going to come down to the target, and we might have to take some action to get it to come to the targets,” he said.
Statistics Canada reported a slight contraction in real gross domestic product over the first three months of the year — a 0.1 per cent annualized decline, coming off a one per cent drop in the fourth quarter of 2025.
In its April forecast, the Bank of Canada called for growth of 1.5 per cent in the first quarter of the year. Macklem chalked much of that miss up to an unexpected pullback in government spending, which he said can be choppy from one quarter to the next.
The pair of consecutive drops triggered debates about a recession hitting Canada, though many economists have pushed back on that narrative, arguing the modest nature of the decline doesn’t meet the bar for a recession.
Asked Wednesday whether he thought the economy was in a recession, Macklem also said that label isn’t yet warranted.
“Based on the data we’ve seen to date, the economy is weak, but it is not clearly in recession,” he said.
Macklem said that, while there’s been some volatility in the economy and labour market over the past year, the wider trend is of flat growth, not a pronounced decline. More than half of Canadian industries were also growing in the first quarter of the year despite the marginal headline decline, he noted.
Recent economic data, including a strong May jobs report, signals the economy could rebound in the second quarter of the year, Macklem said.
“So far, we have not seen a significant broad-based decline in economic activity,” he said.
“Recession is not the word I would use.”
KPMG chief economist Ali Jaffery said in a media statement that the focus on recent economic weakness gave Macklem’s remarks a “dovish” tone — suggestive of looser monetary policy rather than any tightening.
Risks of persistent inflation seem low in the face of a soft economy, Jaffery argued.
“Even if the economy perks up in Q2 — which it likely will — there is a lot of room for non-inflationary growth when an economy is coming out of a hole like this,” he said.
CIBC senior economist Andrew Grantham said in a note to clients that Wednesday’s rate decision reflects a “very patient central bank” content to wait and see how the risks play out.
He said CIBC continues to expect no change to the policy rate in 2026 as the current rate level supports a modest recovery in the economy starting later this year.
This report by The Canadian Press was first published June 10, 2026.
By Craig Lord
