OTTAWA — The Bank of Canada held its policy interest rate at 2.25 per cent on Wednesday. Here is the text of the central bank's decision:
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The Bank of Canada today held its target for the overnight rate at 2.25 per cent, with the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent.
Canada's economy is showing signs of improvement. Growth is picking up and inflation is projected to ease gradually from its recent spike. There are still important risks and uncertainties related to the war in the Middle East and U.S. trade policy.
Since the April Monetary Policy Report (MPR), global economic prospects have been dented by higher oil prices stemming from the Middle East conflict. At the same time, the build-out of artificial intelligence (AI) is supporting economic activity in a growing number of countries. Oil prices are still lower than their peak in April but the situation in the Middle East remains volatile. The path for global inflation is highly dependent on how the conflict unfolds.
The U.S. economy is growing at about 2.5 per cent, mostly because of strong consumption and booming AI investment. China's economy is expanding solidly thanks to robust exports. Economic activity in the euro area has been weighed down by high energy prices, but is expected to strengthen in the second half of the year if energy prices come down as anticipated.
The Bank projects global GDP growth will slow to 2.75 per cent in 2026, mostly because of the effects of the Middle East conflict, and recover to around 3.25 per cent in 2027 and 2028.
Financial conditions in Canada have eased since April and global equity markets have been buoyant. U.S. bond yields have risen, while those in Canada are little changed. This differential has contributed to the depreciation of the Canadian dollar.
Canada's GDP data over the past year was choppy and growth stalled as the economy adjusted to new tariffs, high uncertainty and slower population growth. Labour market conditions have remained soft, reflecting ongoing economic slack. The unemployment rate was 6.5 per cent in June and has hovered in a range of 6.5 per cent to seven per cent since the end of 2024. There are clear signs that economic growth has resumed in the second quarter, with growth estimated at 2.5 per cent. While this largely reflects the unwinding of temporary factors, sources of economic growth appear to be broadening.
Recent indicators point to continued solid consumer spending. Housing activity has been weak but looks to be stabilizing. Export growth has resumed and is expected to continue to strengthen, albeit on a lower path. Business investment is projected to pick up modestly, boosted in the near term by the oil and gas sector. Although the Canada-U.S.-Mexico Agreement is now subject to annual reviews, more businesses report they are finding ways to navigate through the uncertainty. Government spending also contributes to higher economic activity over the projection.