OTTAWA — The Bank of Canada held its policy interest rate at 2.25% Wednesday as Governor Tiff Macklem pointed to rising oil and gas investment as one of the forces helping pull the Canadian economy back into expansion.The central bank kept its Bank Rate at 2.5% and its deposit rate at 2.20%, saying the current policy rate remains appropriate to support the economic recovery while bringing inflation back toward its two% target.Canada’s economy stalled over the past year as businesses adjusted to tariffs, trade uncertainty and slower population growth.However, the bank now estimates the economy expanded at an annualized rate of 2.5% during the second quarter.During Wednesday’s press conference, Macklem said strong American demand is helping Canadian exports recover while some businesses are finding new markets abroad.“In some cases, like aluminum, businesses are finding new markets in Europe, for example,” he said..Macklem said stronger exports should encourage companies to increase capital spending, with the energy sector providing an immediate boost.“Certainly, we expect to see some boost in the near term in business investment coming out of the oil and gas sector,” he said. “Higher oil prices are encouraging more investment in oil and gas.”The bank said increased spending in the oilpatch is expected to support business investment as housing activity remains weak and the broader labour market continues to struggle.Canada’s unemployment rate stood at 6.5% in June and has remained between 6.5% and seven% since the end of 2024.Macklem said the available second-quarter data look “pretty solid,” but the bank will be watching whether the renewed momentum can continue.“When we talk to companies, when we look at the sort of change in momentum, we do think it is sustainable,” he said.“But yes, there is a risk. Growth, particularly exports, could stall going forward. If exports stall, I think investment will stall, hiring will slow down.”Despite those risks, Macklem said “increasingly, the economy is looking like it is in expansion.”The bank’s rate announcement projects the economy will grow by just 0.7% in 2026 before expanding by 1.8% in both 2027 and 2028.Inflation rose to 3.2% in May, driven primarily by higher gasoline prices linked to the war in the Middle East. Excluding gasoline, inflation was 2.2%, while the bank’s measures of core inflation remained near two%.The bank expects inflation to remain elevated in June before gradually returning to approximately 2% in early 2027. That forecast remains dependent on oil and gasoline prices and the course of the Middle East conflict.Higher American bond yields relative to Canadian yields have also contributed to a weaker Canadian dollar since April.The Bank said U.S. economic growth remains strong at approximately 2.5%, supported by consumer spending and booming artificial-intelligence investment. That strength is generating increased demand for Canadian exports.The next interest-rate decision is scheduled for September 2, while the Bank’s next Monetary Policy Report will be released October 28.
