BoC Poised to Hold as Growth Firms, Inflation Fears Ease

The Bank of Canada is widely expected to hold the overnight rate at 2.25% at Wednesday's policy announcement, marking a sixth consecutive pause after 50 basis points of cuts over September and October last year.

The central bank had flagged two-sided risks in prior meetings: downside growth surprises that could justify further cuts, and upside inflation risk from higher energy prices tied to Middle East conflict. Both concerns have faded in the last month, traders and economists said, solidifying the expectation for a hold.

The spike in crude prices has not turned into a broader, durable inflation shock. Higher gasoline prices raised household costs but did not spread across the consumer basket. The BoC's own Business Outlook Survey showed businesses' longer-run inflation expectations well anchored in May, when oil was at its recent peak. Prices have since drifted lower, even with traffic still restricted through the Strait of Hormuz.

Growth and labour data have improved after a downside surprise in first-quarter gross domestic product. Canada-U.S.-Mexico Agreement continues to protect the bulk of Canadian exports from U.S. tariffs, despite the White House opting not to extend the deal's 2036 expiry date–for now. Broader U.S. tariff rates have been edging lower.