Tiff Macklem speaks to reporters after Bank of Canada holds key rate at 2.25%

Policy decision and core message

The Bank of Canada kept its policy interest rate unchanged at 2.25% (“maintained the policy interest rate” at that level). In its Monetary Policy Report briefing, it argued that:

• Economic growth is restarting and broadening
• Inflation is expected to gradually ease back toward the 2% target

This outlook depends on an important assumption: global oil prices decline and do not stay elevated.

Main messages and outlook

Growth in Canada

The Bank said growth has resumed in Canada after a year of stagnation. It cited:

• Consumer resilience (spending remains solid)
• Housing stabilizing after weakness (not expected to be a major growth driver)
• Export recovery after adaptation to U.S. tariffs and trade uncertainty, supported by a strong U.S. economy and renewed orders
• Business investment improving, with near-term support from oil and gas
• Government spending contributing to activity

Labor market and inflation pressure

The economy is described as being in “excess supply” with a soft labor market (unemployment roughly 6.5%–7%). The Bank emphasized that this excess capacity helps limit broad upward pressure on inflation.

Inflation outlook and key risk

Where inflation is coming from

• Headline CPI inflation is above target (around 3.2% in May)
• The Bank argues the issue is concentrated in gasoline prices, linked to the Middle East conflict
• Core measures are near ~2%, suggesting inflation hasn’t broadly spread beyond energy

Expected path for inflation

The Bank expects inflation to:

• Stay elevated briefly (June) due to gasoline
• Then ease gradually, returning to the 2% target in early 2027

The oil-price dependency

A major emphasis was that the forecast is highly dependent on the path for global oil prices (assumed roughly $70–$75 U.S. per barrel). Since the forecast was finalized, oil futures have moved higher, increasing the risk that inflation could spread more broadly if prices remain high.

The Bank stated it will not allow higher oil prices to become persistent generalized inflation, implying readiness to tighten policy if needed.

Risks discussed

Biggest external risks

1. Middle East conflict and oil-price volatility (oil could spur broader inflation if it stays elevated)
2. Trade relationship with the United States (tariffs and uncertainty could weaken exports, investment, and hiring)

Domestic balance risks to inflation

• Inflation could get “stuck” above 2% if costs and pass-through are larger than expected, or if the economy recovers faster than anticipated
• Alternatively, the growth rebound could be less sustainable, leaving more excess supply and putting downward pressure on inflation

Overall uncertainty remains high, but the Bank’s judgment is that the current rate is appropriate to sustain the recovery and bring inflation back to target.

What would trigger further rate hikes or cuts?

In Q&A, the governor reiterated that if there is a scenario where oil prices rise and stay high (persist), the risk becomes inflation broadening and persistence—and the Bank would likely need at least consecutive interest rate hikes (as described in the April scenario).

In the Bank’s base case, oil prices are expected to ease, so consecutive hikes are not the central expectation.

The Bank also avoided “handicapping” timing, emphasizing: “one decision at a time.”

Additional points raised by reporters

• Canadian dollar: Currency moves are not a major factor in policy decisions. The Bank embeds exchange-rate assumptions in the forecast (around 0.71 CAD per USD) and views the overall impact as relatively small.
• Major pipeline/project announcements (Alberta): These are in the development stage and won’t show up quickly in hard data, but may support confidence/optimism reflected in the outlook.
• Vancouver/Toronto unsold condos and government condo-buying plans: The governor described the condo market as correcting due to investor-market decline and demographic/timing effects. The Bank said it is monitored, but not a direct threat to broader financial stability unless the issue becomes broader and more persistent.
• “Overly optimistic” concern: The Bank acknowledged mixed signals in business surveys but argued the baseline remains for improvement, supported by consumer resilience and export momentum tied to trade adaptation.
• Housing and rate transmission: The governor suggested housing is constrained by affordability issues and uncertainty, which can blunt the effect of rate cuts.
• Decision-making framework: The governor and senior deputy governor defended the Bank’s consensus-based process, saying it improves decision quality, encourages debate, and supports communication “with one voice.”

Presenters / contributors

• Tiff Macklem (Governor, Bank of Canada)
• Carolyn Rogers (Senior Deputy Governor, Bank of Canada)
• Paul Vieiraa (The Wall Street Journal)
• Njude Almales / Nidal? (spelled in subtitles “Njude Almales”) (Bloomberg)
• Craig Lord (Canadian Press)
• Mark Randle (The Globe and Mail)
• Prommit Mukerji (Thompson Reuters)
• Greg Quinn (Market News)
• McKenzie Gray (Global News)
• Judy Trin (CTV News)
• Anna Pereira (Toronto Star)
• Rob McCclister (Mortgage Logic News)
• Max Sato (Mace News)

(Also referenced: Paul as the moderator/host in the Q&A segment—likely Paul Vieiraa, based on the sequence, though subtitles include a “Paul” earlier.)