Bank of Canada Is Set to Stay on Hold With Rates, Says BMO

06:56 AM EDT, 06/11/2026 (MT Newswires) -- The Bank of Canada left policy rates unchanged at 2.25% on Wednesday and reinforced Bank of Montreal's (BMO) view that rates will likely be at this level through 2026.

Here's the crux of the BoC's policy dilemma: "Raising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk that higher inflation becomes persistent. For now, holding the policy rate unchanged balances those risks."

Inflation in this context is largely refers to the risk that high oil prices eventually pass through to broader price pressures, noted the bank.

On the ground now, however, core inflation momentum has ebbed, stated BMO. The old-school measure of core inflation (CPIX, which scrubs out tax changes as well) was 2.1% year over year as of April.

That leaves real policy rates just a shade above zero and probably around the right level, added the bank. The era of deeply negative real interest rates (post-GFC and pandemic) is clearly behind Canada.

However, current structural headwinds (trade, etc.) probably don't warrant neutral real rates at levels that persisted in the era before that.

On hold the BoC remains, concluded BMO.

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