BoC Holds Rates but Warns of Potential Multiple Rate Hikes Amid Inflation Risks

The Bank of Canada (BoC) maintained its overnight interest rate at 2.25%, as widely anticipated, but delivered a more cautious message in its latest policy statement. Governor Tiff Macklem emphasized that inflation risks have increased and the economic recovery has become harder to assess.

Macklem stated that multiple rate increases could be required if inflation remains a problem, with decisions guided by the inflation outlook and surrounding risks. The bank's statement highlighted a difficult combination of subdued labour demand, excess supply, and rising uncertainty about the sustainability of the economic rebound.

New US tariffs and the threat of further trade action are clouding growth prospects, while the ongoing Middle East conflict is keeping energy prices higher for longer. Macklem acknowledged that inflation was too high, noting it was heavily concentrated in gasoline and oil prices.