Bank of Canada Holds Its Key Rate

June 10, 2026

The Bank of Canada has kept its key policy rate at 2.25%. 

The move is emblematic of the uncertainty in the economy. The Canadian economy blew past expectations by adding 88 000 jobs in May. However, this comes on the heels of the data from last month showing that the economy entered a technical recession. The Bank also cites the war in the Middle East and trade policy uncertainty with the US as causes for uncertainty. Moreover, the CAD is also weakening, and lowering the policy rate would increase the differential with the Fed’s policy rate, further weakening demand for the Canadian dollar. The BoC also notes that core inflation remains low, showing that elevated oil and gas prices have not seeped in to other goods, which is a benefit for consumers.

The mix of positive and negative signals is likely the reason why the Bank is so hesitant to tweak its key policy rate, where a hike could temper inflation but further slow the economy, or a cut could stimulate the economy and job market at the cost of increased inflation.

So where are rates headed? The reality is, that if the BoC doesn’t know then we don’t know. 

Importantly, oil prices continue to be subdued despite the effective closure of the Strait of Hormuz. According to Trading Economics, the price of WTI crude oil has stay below $100 since May 21 as expectations increased that a diplomatic breakthrough could reopen the strait. Lower oil prices will mean lower inflation, giving the BoC room to lower rates and stimulate the economy.

In the second last paragraph of the BoC’s press release, they gave us a clue as to what their top priority is, stating that the “Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation.” This makes it clear that the BoC’s decision making hinges on any oil-induced inflation, and declining oil prices will likely lead to rate cuts in the future.

Sources: tradingeconomics.com, bankofcanada.ca.