That would mark a third consecutive hold, following a rapid 225-basis-point easing cycle between June 2024 and March 2025.
While growth has clearly slowed, the Bank’s preferred core inflation metrics remain too high for comfort. And with U.S. trade uncertainty unresolved and consumer demand still fragile, economists say the BoC is unlikely to cut rates this week.
No urgent case to cut
“Canada is not strong enough to cheer, not weak enough to cut,” said TD economist Maria Solovieva. Her read of the latest Bank of Canada business and consumer surveys suggests that confidence has deteriorated again in recent months, after showing signs of recovery late last year.
Both the Business Outlook Survey and the Canadian Survey of Consumer Expectations fell deeper into negative territory in Q2, reversing the cautious optimism seen earlier in the year. Retail spending also declined in May, particularly in autos, though a preliminary rebound in June could stabilize quarterly goods consumption.
Still, future sales expectations have turned negative, investment intentions remain well below average, and consumers continue to report subdued spending plans. “This week’s data doesn’t signal a collapse,” Solovieva wrote, “but it doesn’t suggest strength either.”
Inflation remains the key obstacle
What’s keeping the Bank on hold, despite soft demand, is inflation. Core measures, particularly trimmed mean and weighted median CPI, remain above 3%, and services inflation is proving stubborn. Scotiabank’s Derek Holt argues the Bank is “still fighting the last inflation fight,” with elevated core inflation lingering well beyond when economic slack began to emerge.
The team at RBC Economics agrees, noting that core inflation is being driven by domestic service prices rather than global shocks, which may require a longer period of elevated rates to contain. As a result, they also don’t expect any further rate cuts this cycle (as we recently wrote about: RBC expects no further BoC rate cuts).
Adding to the Bank’s caution are upside risks from potential fiscal stimulus this fall and a volatile trade environment. “How can you adjust policy when you haven’t a clue what trade and fiscal policies might unfold and you are still fighting the last inflation fight?” Holt asks.
Labour market resilient, but not booming
While headline job gains in June were strong, with 83,000 positions added, CIBC’s Avery Shenfeld sees signs of deeper fatigue. Payroll data suggests weakness is spreading beyond trade-exposed sectors into the broader labour market, particularly in high-debt regions like Ontario and B.C., where mortgage renewals are weighing on consumer spending.
That said, the Bank may view recent employment strength as a reason to stay patient, he suggests. “We are far from full employment,” Shenfeld said, “but we also don’t have the luxury the Fed has to wait and see indefinitely.”
Market pricing: A hold now, uncertainty later
The BoC’s updated Monetary Policy Report is expected to provide more insight into the central bank’s outlook, though some economists think it will continue with scenario-based forecasts rather than a firm base case. Uncertainty around trade, government spending, and inflation gives the Bank good reason to stick with a cautious outlook, they say.
BMO still sees a path to further easing this year, with a rate cut possible as early as this week. But most market watchers are now betting on a more prolonged pause. As TD notes, markets are pricing in just one more quarter-point rate cut by the end of the year.
Here’s how Canada’s Big 6 banks see the Bank of Canada’s policy rate evolving through the end of 2026.
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Last modified: July 28, 2025
