Statistics Canada releases its second-quarter GDP estimate on Friday
Economists came away from the Bank of Canada's latest deliberations convinced the central bank will stay on hold for the rest of the year, even as bond markets keep a small bet on higher rates alive.
The summary of the July discussions, released Wednesday by the Bank of Canada, showed a governing council more confident in the economy's second-quarter rebound but divided on whether it will last, and analysts read that balance as a case for patience.
The record struck a measured tone, according to TD Securities, which said the deliberations "were relatively balanced as the Bank noted the economy is adjusting to recent shocks, which added to its confidence that growth would strengthen going forward."
The firm did flag one caution in the minutes, pointing to "concern over medium-term inflation expectations drifting higher, even as longer-term measures remain well anchored."
The council captured its own divide plainly.
"Governing Council was confident about the rebound in GDP growth in the second quarter," the summary read, but "there was a range of views among Governing Council members about the sustainability of the rebound beyond the near term."
RBC expects the bank to sit tight well into next year.
Senior economist Claire Fan wrote that policymakers should be "steady but nimble, holding rates at borderline accommodative levels through 2026, before improving economic conditions prompt moderate rate hikes in 2027."
Markets are not fully sold on that calm.
After the July 15 decision, Capital Economics North America economist Thomas Ryan said the bank's messaging "suggests it has no intention of responding to energy-driven inflation with higher interest rates," adding that "money markets continue to price in some chance of tightening."
The council left that door ajar, warning in the summary that "if oil prices increased and were to stay higher, spillovers to other prices could increase, raising the risk that inflation would broaden."
Such a move, it added, "would likely require a monetary policy response."
That tension traces back to gasoline.
Inflation climbed to 3.2 percent in May on an oil spike before easing to 2.8 percent in June as the prospect of peace between the United States and Iran cooled price pressures.
The next test arrives Friday, when Statistics Canada releases its early estimate of second-quarter growth alongside May GDP figures.
The Bank of Canada has pegged the quarter's annualized growth at about 2.5 percent, a figure the incoming data will either confirm or undercut.
One wildcard sits outside the numbers.
The July forecasts predated Washington's latest threat of 50 percent tariffs on a range of Canadian goods, as per The Canadian Press, a downside risk the council had already described as "an ever-present downside risk to growth."
Most economists still expect the bank to hold its policy rate for the remainder of the year, according to The Canadian Press.
Its next scheduled decision lands September 2.
