Bank of Canada Seen Holding 2.25% Rate as Gas Prices Squeeze Households

Q: If high oil prices force its hand, how quickly is the Bank of Canada prepared to raise interest rates this year?

If high oil prices force action, the Bank of Canada has signaled it could move quickly, including with consecutive rate hikes this year. Governor Tiff Macklem has said the bank is prepared to raise rates if oil prices stay high long enough to push inflation beyond gasoline and food into a broader, more persistent pattern. The bank’s concern is not the initial energy shock itself, but whether it starts feeding through to other goods and services and lifts inflation expectations. That means the trigger is not simply expensive oil, but sustained oil-driven inflation that becomes generalized. The Bank has said monetary policy may need to be “nimble” in that scenario, and its own deliberations indicate that “consecutive increases” could be required to bring inflation back to target. For now, that is not the base case. The bank still expects inflation to ease, assuming oil prices moderate toward roughly US$70 to US$75 a barrel. Core inflation remains near 2 per cent, and most economists, including BMO’s Douglas Porter, expect the Bank to stay on hold for the rest of 2026. Markets have also scaled back expectations for tightening, though some still see better-than-even odds of one quarter-point increase this year. So the practical answer is that the Bank is not preparing an immediate hike now, but if oil stays elevated and inflation broadens, it has clearly left the door open to back-to-back increases at upcoming decisions rather than a slow, one-off response.

3 articles · Updated · BNN Bloomberg · Jul 15

2.25% is expected to stay unchanged this week, with analysts saying the Bank of Canada is unlikely to hike despite war-driven pressure on energy prices and inflation.
18,000 jobs were added in the latest report, but much of the gain came from part-time work while higher-paying government and manufacturing jobs were lost, weakening the case for tighter policy.
Higher gasoline costs are already draining disposable income like a de facto rate hike, while mortgage renewals at much higher rates and rising 90-day loan delinquencies leave the housing market vulnerable.
CUSMA uncertainty is adding pressure on investment and manufacturing, which makes up about 10% of GDP, even as a tentative Ford-Unifor deal covering 5,000 workers offers a modest positive signal.
That mix of energy-driven inflation, fragile households and trade risk helps explain why the bank later kept its key rate unchanged for a sixth straight meeting.