The Bank of Canada (BoC) again left its benchmark overnight interest rate unchanged yesterday. The decision came as Canada’s economy faces competing pressures, with weak economic activity on one side and rising energy prices stemming from the conflict in the Middle East on the other. Rather than commit to a certain path, the BoC said it’s keeping its options open as it watches how energy prices and trade tensions play out.

• The BoC held its benchmark overnight interest rate steady at 2.25%. This marked the fifth consecutive hold and matched the expectations of economists and markets.
• BoC Governor Tiff Macklem described a policy dilemma. Raising interest rates to fight inflation could further slow an already weak economy, while cutting interest rates to support economic growth risks making higher inflation persistent. For now, holding steady balances the risks.
• Oil prices remain elevated, about $10 per barrel above the BoC’s April estimates, but there has been limited evidence of higher energy costs spreading to other consumer prices, with core inflation down to around 2%.
• The BoC expects inflation to stay close to 3% in the near term before gradually returning to its 2% target.
• Looking ahead, the BoC said it could cut interest rates if the US imposes more major tariffs, or deliver consecutive interest rate hikes if higher energy prices lead to continued, generalized inflation.

The BoC is leaving room to manoeuvr as it monitors how geopolitical tensions and trade policy affect inflation and economic activity. Many economists believe the BoC may leave its policy interest rate unchanged for the rest of the year, but the central bank has made clear it’s prepared to move in either direction if conditions change.

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