Bank of Canada Holds Rate at 2.25% as Gasoline Keeps Inflation Elevated

The Bank of Canada left its benchmark interest rate unchanged at 2.25%, extending a sixth straight pause after cutting rates last autumn. The accompanying Monetary Policy Report acknowledged that inflation, which rose to 3.2% in May largely because of higher gasoline prices, continues to threaten stability, even as measures excluding gasoline and core inflation have stayed close to 2%. Governor Tiff Macklem signalled a steady but watchful stance, dropping earlier references to the possibility of consecutive hikes or cuts, and reiterated that the bank is prepared to adjust policy as needed given elevated uncertainty. The central bank pointed to two dominant risks: the Middle East conflict, through its effect on oil prices, and the evolving United States trade relationship, including the annual review of the Canada-United States-Mexico Agreement. It also flagged a weaker Canadian dollar, driven by a widening gap between rising US bond yields and largely unchanged Canadian yields. For homeowners, the hold keeps mortgage and borrowing costs broadly stable for now, with the bank expecting inflation to return to its 2% target by early 2027.