As markets had overwhelmingly anticipated, the Bank of Canada left its policy settings on hold this morning, while pointing to signs of renewed economic growth and gradually easing inflation against a backdrop of persistent risks from the Middle East conflict and US trade tensions.

Officials led by Governor Tiff Macklem maintained the policy rate at 2.25 percent for a sixth consecutive meeting after delivering nine cuts between June 2024 and September 2025.

In the official statement setting out the decision, policymakers took a more optimistic view on the outlook, highlighting recent evidence of solid consumer spending, a stabilisation in housing activity, stronger export growth, higher business investment, and more government spending as factors that could reduce slack across the economy over time.

In an overview introducing the Monetary Policy Report, officials said “After a year of weakness, Canada’s economy is showing signs of improvement. Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high”.

Updated projections showed the Bank’s economists think the economy will grow 0.7% this year after a bottoming in the first quarter, before accelerating to 1.8% in 2027 and 2028. Headline inflation is seen staying elevated in the coming months as energy prices feed through, but officials aren’t seeing “broad spillovers” in core categories, and see inflation expectations remaining well anchored.

In remarks released ahead of the post-decision press conference, Governor Tiff Macklem dropped the reference to “consecutive” rate hikes that had appeared in previous opening statements, and also removed language that opened the door to rate cuts—suggesting that the Bank now sees risks to its mandate beginning to diminish, reducing the likelihood of a policy pivot.

The Canadian dollar is inching very slightly lower amid muted price action, suggesting that traders were well-prepared for the message delivered by policymakers. Market perspectives could shift when Macklem and Deputy Governor Rogers answer questions in the next half hour, but for now, there’s little to suggest that the status quo—with Canada expected to keep rates on hold for a prolonged period —is likely to change for now. Instead, we think the Canadian dollar’s direction will be dictated by a softening in expectations surrounding the US economy, capital markets, and the Federal Reserve’s trajectory, with the loonie’s risk profile turning more constructive as the autumn months approach.