The Bank of Canada is widely expected to hold its trendsetting overnight interest rate at its current level when it concludes its latest policy meeting on July 30.
The overnight rate is currently at 2.75%, a level that has held steady over the central bank’s past two decisions.
Futures traders currently put the odds of a 25-basis point rate cut from the Bank of Canada at just 7%, according to LSEG data.
Economists point to an uptick in recent inflation data and a resilient labour market as reasons for the central bank to remain on the sidelines.
The Canadian economy added an unexpected 83,000 jobs in June, driving the unemployment rate lower for the first time since January of this year.
At the same time, Canada’s annual inflation rate rose to 1.9% in June. However, inflation remains largely benign and below the Bank of Canada’s 2% annualized target.
While most economists expect the Bank of Canada to hold rates steady in July, the consensus expectation is for two more quarter-point rate cuts by year’s end.
Overall, Canada’s labour market remains weak with the unemployment rate at 6.9% currently.
Additionally, signs are pointing to an economic contraction in the second quarter of the year due to Canada’s tariff dispute with the neighbouring U.S.
Bank of Canada Governor Tiff Macklem has said that he’s less forward-looking than usual right now due to trade issues with the U.S.
Tariff deadlines continue to hover over the federal government in Ottawa and Bank of Canada.
U.S. President Donald Trump has threatened to impose tariffs of 35% on Canadian imports starting Aug. 1. Trade negotiations between the countries are ongoing.
