This will be the third consecutive holding after a slow cycle of 225 benchmark points between June 2024 and March 2025.
Although growth has clearly slowed down, the core inflation indicators of banks’ preferred choice are still too high to be comfortable. Consumer demand remains fragile as U.S. trade uncertainty remains unresolved, economists say interest rates are unlikely to be lowered this week.
No emergency case cuts
“Canada is not enough to cheer, not enough to cut,” said Maria Solovieva, a TD economist. She read the latest business and consumer survey by the Bank of Canada that showed confidence in recent months worsened again after showing signs of recovery late last year.
Both the business outlook survey and Canada’s survey of consumer expectations went deeper into negative territory in the second quarter, reversing the cautious optimism seen earlier this year. Retail spending also declined in May, especially in automobiles, although a preliminary rebound in June could stabilize quarterly food consumption.
Still, future sales expectations are negative, investment intentions remain below average, and consumers continue to report shortened spending plans. “This week’s data does not mean a collapse, but it does not imply a power,” Soloviva wrote.
Inflation remains a key obstacle
Despite the soft demand, inflation is still putting the bank on hold. Core measures, especially the trimmed average and weighted median CPI, remain above 3%, and the service inflation rate proves stubborn. Scotiabank’s Derek Holt believes the bank is “still fighting the last inflation” and that when economic slack starts to emerge, the core inflation rate increases are far beyond the scope.
The team at Royal Bank of Canada (RBC) Economics agreed, noting that core inflation is driven by domestic service prices rather than global shocks, which could take longer and longer interest rates. As a result, they also don’t want any further interest rates to lower this cycle (as we recently wrote: Royal Bank of Canada expects no further reduction in BOC rate).
In addition to bank caution, upside risks to the potential fiscal stimulus and turbulent trade environment this fall. “How do you adjust your policy when you don’t know which deals and fiscal policies might unfold and you’re still fighting the last inflation?” Holt asked.
The labor market is resilient but not vigorous
While the new headlines were strong in June, adding 83,000 positions, CIBC’s Avery Shenfeld saw deeper signs of fatigue. Payroll data suggest that weaknesses are moving beyond the trade-exposed sectors to the wider labor market, especially in higher-level areas such as Ontario and British Columbia, where mortgage renewals weight on consumer spending.
That is, banks may view recent employment strength as a reason to remain patient. “We’re far from fully employed, but we don’t have the luxury that the Fed has to watch indefinitely,” Shenfeld said.
Market pricing: Stay uncertain now
The BOC’s latest monetary policy report is expected to provide more insight into the central bank’s outlook, although some economists believe it will continue to make program-based predictions rather than firmly fundamental cases. They say uncertainties in trade, government spending and inflation give banks good reasons to stick to a cautious outlook.
BMO still sees a path to further easing this year, and can slow down as early as this week. However, most market observers are now betting on longer pauses. As TD points out, by the end of this year, the market’s pricing has been reduced by only a quarter.
This is how the six largest Canadian banks see Canadian banks’ policy interest rates continue to develop by the end of 2026.
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Bank of Canada Bank of Canada Preview Canadian Tax Rate Forecast Bank of Canada Interest Rate Forecast Big Bank Forecast BOC Preview derek Holt Efflation Maria Solovieva
Last modified: July 28, 2025
