BofA expects Bank of Canada to hold rates

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On Thursday, 04 June 2026, Bank of America said it expects the Bank of Canada to keep its benchmark interest rate unchanged at 2.25% at its upcoming June 10 meeting and maintain that policy stance through the end of 2026, as policymakers continue to balance weak economic growth against persistent external risks.

The outlook signals a prolonged policy pause, reflecting cautious sentiment among policymakers as they monitor inflation trends, labor market conditions, and global economic uncertainty.

Weak growth supports policy pause

BofA’s outlook is anchored in ongoing weakness in the Canadian economy, which limits the case for further tightening:

• Economy has recorded two consecutive quarters of contraction
• Labor market conditions remain soft
• Negative output gap is helping contain core inflation

According to the note, these factors reduce the likelihood of near-term rate hikes despite lingering inflation risks.

Inflation risks still in focus

While growth is weak, inflation risks have not fully faded, particularly due to external pressures:

• Elevated oil prices may keep inflation sticky
• Policy tone expected to remain cautious and data-dependent
• Bank likely to emphasize flexibility in forward guidance

BofA expects the central bank to acknowledge that higher energy costs could complicate the inflation outlook in the coming months.

Markets already pricing in prolonged pause

Financial markets have recently adjusted expectations for interest rates:

• Rate hike expectations have been scaled back
• Yield curve has steepened in recent weeks
• Market positioning supports a prolonged policy hold

The Bank of Canada’s next policy decision is scheduled for June 10, with investors watching closely for any shift in tone regarding inflation and growth risks.