Bank of Canada set to hold interest rates steady for the fifth time amid weak growth and subdued core inflation

Ottawa —
The Bank of Canada is widely expected to hold the key interest rate steady at 2.25% in its upcoming meeting, marking the fifth consecutive decision without a change in monetary policy.

The expectations come after data showed that the Canadian economy contracted slightly for the second consecutive quarter, sparking debate about the country entering a technical recession, although the bank and several economists warn against relying on this indicator alone.

Analysts point out that the weak first-quarter data reduces the likelihood of a rate hike soon, especially since the contraction was limited and may be subject to later revisions, while preliminary indicators showed growth in April and a strong improvement in the labor market during May.

The Canadian economy added 87,800 jobs in May, with the unemployment rate falling to 6.6%, signaling that economic activity may have begun to regain some momentum in the second quarter.

On the other hand, high energy prices continue to pressure overall inflation, which reached 2.8% in April, but came in below analysts' expectations. Core inflation measures monitored by the Bank of Canada also declined to calmer levels.

Economists believe the bank will try to balance weak growth on one hand, and the risks of energy price increases spilling over into broader inflation on the other.

Bank of Canada Governor Tiff Macklem had previously indicated that the current interest rate level seems appropriate to help the economy adjust to trade pressures and bring inflation back to target, but he warned that entrenched price pressures might require further tightening.

However, several analysts expect the bank to soften its hawkish tone compared to the previous meeting, as recent economic data do not provide a strong justification for moving in either direction.

Macklem and his deputy Carolyn Rogers are expected to speak to reporters after the decision, at a time when markets are awaiting clearer signals on whether the bank views the current slowdown as temporary or the beginning of deeper economic weakness.