The Bank of Canada is widely expected to keep borrowing rates unchanged this week, according to several economists, who also believe a rate hike in the coming months is more likely than a cut.
That comes as consumers struggle with the high cost of living and after recent economic data showed a technical recession.
The Bank of Canada has kept its benchmark policy rate at 2.25 per cent since October 2025, even as U.S. tariffs and the Iran war have hammered the economy and job market.
“For the first time in a while, the Bank of Canada’s next move doesn’t seem so obvious,” Clay Jarvis, a mortgage expert at NerdWallet Canada, said in a note.
“Under normal circumstances, today’s sagging economy might call for the stimulative jolt of a rate cut. But it’s hard to justify cutting the overnight rate when an aimless war is fuelling inflation.”
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Royal Bank of Canada Economics said in a note penned by assistant chief economist Nathan Janzen and economist Abbey Xu that it expects the Bank of Canada to “remain cautious” and keep rates on hold for the rest of 2026, but could start ticking up in 2027.
“You’ll see gradual improvement in the per-person economic backdrop this year, and the unemployment rate moving lower,” said Janzen, speaking to Global News.
“It would be a good news story if they [the Bank of Canada] are hiking in 2027 because it means that the economic backdrop is firmer than it is today.”
The Parliamentary Budget Officer released an economic outlook on June 4, and said it also expects rates to start rising into next year.
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“As supply disruptions arising from the Middle East conflict ease and inflation returns toward the Bank of Canada’s 2 per cent target, we expect the Bank will gradually raise its policy rate, reaching 2.50 per cent in mid-2027 and returning to its estimated neutral level of 2.75 per cent by the end of 2027,” the outlook said.
Other economists think those hikes could come even sooner than next year.
“Left shrugging their shoulders for now will be the Bank of Canada this week as it stays on hold and in monitoring mode,” Derek Holt, senior vice-president and head of capital markets economics at Scotiabank, said in a written note.
“A pressure cooker of developments is likely to build over 2026H2 [July through December] that could pivot the BoC toward our long-held hike call.
“Our forecast is for 50bps [0.5 per cent] of hikes in 2026Q4 [October through December] and another in early 2027 ending at a nominal policy rate of three per cent.”
How the Bank of Canada determines rates
The Bank of Canada’s mandate and core responsibility is to “promote the economic and financial welfare of Canada.” Its primary lever, which can influence changes in the economy, is adjusting its monetary policy — effectively, changing borrowing costs for Canadians.
Cutting rates can spur economic growth by making borrowing money more affordable for things like mortgages and business loans, but if rates are too low, then inflation could mean higher prices for goods and services.
Raising rates increases the cost to take out a loan, and potentially slows the economy down. This is often done when inflation gets out of control, but if rates are too restrictive, then it could risk causing a recession if the economy slows too much.
Balancing monetary policy is something the bank’s governing body calculates at each policy meeting — including this week. These meetings are conducted regularly to determine if rates should stay the same, rise or fall based on recent economic data and analysis.
Gross domestic product (GDP) is one of the key gauges the Bank of Canada uses to determine monetary policy, and although the most recent report showed Canada is in a technical recession, senior deputy governor Carolyn Rogers has cautioned that “I think we need to be careful not to put too much weight in any one indicator.”
Rogers also highlighted that the preliminary estimates for GDP in April point to a bit of a rebound in the economy, and this was another reason to be cautious when using the “recession” label.
The job market showed some positive signs on Friday, with May’s Labour Force Survey showing the unemployment rate fell to 6.6 per cent from 6.9 per cent in April, and 88,000 jobs were added.
Although gas prices had fuelled a higher headline inflation reading of 2.8 per cent in April, core or underlying measures had actually fallen from 2.2 to two per cent.
The bank’s target range for inflation is one to three per cent.
“Some will point to our newly uncovered technical recession as justification for a cut, but I think inflation is still the Bank’s priority,” Jarvis said. “If that’s the case, they’ll hold the overnight rate next week and preserve a status quo that feels increasingly queasy.”
The Bank of Canada is scheduled to announce its updated policy on Wednesday at 9:45 a.m. eastern time, with a press conference to follow.
© 2026 Global News, a division of Corus Entertainment Inc.
