This is an account of the Bank of Canada’s Governing Council deliberations leading to the monetary policy decision on July 15, 2026.
This summary reflects discussions and deliberations by members of Governing Council in stage three of the Bank’s monetary policy decision-making process. This stage takes place after members have received all staff briefings and recommendations.
Governing Council’s policy decision-making meetings began on July 7, 2026. The Governor presided over these meetings. Members in attendance were Governor Tiff Macklem, Senior Deputy Governor Carolyn Rogers (who joined deliberations on July 8) and Deputy Governors Toni Gravelle, Nicolas Vincent, Michelle Alexopoulos and Marc-André Gosselin.
International economy
Governing Council members began their deliberations by discussing developments in the global economy since the April Monetary Policy Report. Global growth took a hit from the war in the Middle East and the spike in oil prices, but growth was expected to recover in the second half of 2026 as oil prices declined from their April peak. Strong investment in artificial intelligence (AI) was boosting economic activity in a growing number of countries.
Global inflation, which had been pushed up by war-related increases in energy prices and supply disruptions, was expected to ease following the decline in oil prices. But the impact of these developments on inflation would vary across countries based on their exposure to oil and goods shipped through the Strait of Hormuz. Also, the delayed pass-through of higher energy prices to other goods and services, as well as lingering supply chain disruptions, could cause more persistent inflation. In addition, hostilities re-escalated during Governing Council’s deliberations and were pushing up global oil prices once again and causing further transportation disruptions, raising the risk of higher inflation and hampering growth prospects.
The US economy was expected to grow solidly over the projection period despite some slowing in consumer spending in the first quarter of 2026. Strong consumer spending and investment in AI were expected to continue to be the main contributors to US growth. Despite the solid growth profile and a balanced US labour market, credit card delinquencies were up, and housing activity was weaker than expected, pointing to downside risks to the sustainability of household spending. Inflation in the United States has remained above target because of tariffs, higher gasoline prices and persistent inflationary pressures in services excluding shelter.
Growth in the euro area was subdued because of higher global energy prices but was expected to recover in the second half of the year, assuming energy prices come down.
The Chinese economy continued to be driven by exports and manufacturing, while domestic activity was weighed down by ongoing weakness in housing and consumer spending. Over time, export growth in China was expected to ease and domestic demand to gradually recover, but uncertainty remained about the timing and success of this shift.
Growth in global gross domestic product (GDP) was expected to slow to 2¾% in 2026—mostly because of the effects of the conflict in the Middle East—and then to recover to around 3¼% in 2027 and 2028.
Members discussed how commodity prices and financial conditions had evolved since the April Report. Global oil prices had declined substantially from their peak of around US$120 per barrel in April but subsequently rose again in July as hostilities resumed in the Middle East. Copper and aluminum prices had increased because of supply constraints and higher global demand. Global equity markets rose as investors focused less on the Middle East conflict and more on continued strong earnings in AI-related sectors. US bond yields had risen on strong macroeconomic news, while those in Canada were little changed. This widening bond-yield differential had contributed to the depreciation of the Canadian dollar.
Canadian economy and inflation outlook
Governing Council members discussed developments in the Canadian economy. They noted that the economy had stalled. GDP had not grown between the first quarter of 2025 and the first quarter of 2026, and data had been volatile quarter over quarter during this period. US tariffs and trade policy uncertainty had combined to keep the economy in excess supply.
More recent indicators showed signs that the economy was recovering in the second quarter of 2026 and that growth was broadening from its reliance on consumer and government spending.
After contracting, growth in exports had resumed, though on a lower path. Canadian exports were being supported by the strong US economy, and higher global oil prices were providing a boost to energy exports. Businesses reported that they were adapting to the new trade environment. According to responses to the Business Outlook Survey, fewer US customers were holding back orders due to trade uncertainty, and some respondents indicated that they were adapting their production, shipping and customs arrangements. However, exports in sectors directly affected by US tariffs were still down compared to pre-trade conflict levels. More recently, aluminum exports benefited from elevated global prices and supply shortages in Europe.
Investment in the oil and gas sector was expected to contribute to a pickup in business investment in the near term. Over the projection, the sources of investment growth were expected to broaden.
Housing activity was still weak, but there were signs that resale activity had returned to positive growth in the second quarter after contracting in the previous two quarters, albeit with regional differences.
Labour Force Survey data for May and June showed that job growth had resumed. Youth unemployment declined as more students found summer jobs. The unemployment rate ticked down to 6.5% in June but was still in the range of 6½% to 7% that it had been in for most of the past year. Overall, members agreed that the labour market remained soft.
Considering the data, members expected that economic growth in the second quarter would rebound to about 2.5%. As the economy continues to adjust, growth is expected to strengthen from 0.7% overall in 2026 to 1.8% in both 2027 and 2028, gradually absorbing slack in the economy.
The evolution of inflation was dominated by movements in gasoline prices. The war in the Middle East caused the benchmark global oil price to surge to around US$120 per barrel. Combined with higher refinery margins, this pushed gasoline prices up sharply. Inflation, which had been around the 2% target for more than a year and a half, rose to 3.2% in May. Inflation excluding gasoline was 2.2%, and core measures of inflation stayed around 2%.
Members discussed inflation expectations, noting that near-term inflation expectations had fluctuated with changes in gasoline prices. Some members were concerned about signs of upward drift in medium-term inflation expectations, but all agreed longer-term inflation expectations remained well anchored.
Members discussed at length the outlook for inflation. As the United States and Iran negotiated an interim agreement in June, global oil prices declined to about US$75 per barrel but remained volatile. At the same time, reduced global refining capacity was keeping refinery margins high, which was holding up gasoline prices.
Continued excess supply and slow growth in unit labour costs were putting downward pressure on other prices, particularly for services excluding shelter. Inflation in both housing-related services and rent had slowed, partly reflecting lower demand amid slower population growth. These factors have helped to offset the pass-through of higher gasoline prices and war-related cost pressures to some consumer prices, which has been limited so far.
Taken together, these factors suggested that inflation would likely ease gradually over the coming months, assuming oil prices continue to come down. If global oil prices fell in line with market expectations at the time of the July Report and gasoline margins narrowed as assumed, inflation was expected to ease to about 2½% in the second half of 2026 before reaching the 2% target in early 2027. It was then expected to average around 2% in 2027 and 2028, albeit with some monthly fluctuations because of base-year effects.
The renewal of hostilities in the Middle East during Governing Council’s deliberations underscored the uncertainty around the inflation outlook.
Considerations for monetary policy
Governing Council members discussed the risks to their outlook for growth and inflation and what these implied for the stance of monetary policy.
Members focused initially on the two major risks to the outlook: the upside risk to inflation from the war in the Middle East and the downside risk to growth from US trade policy.
The situation in the Middle East remained volatile. Although oil prices had fallen from their April highs, renewed strikes near the Strait of Hormuz underlined that upside risks to inflation remained. If oil prices increased and were to stay higher, spillovers to other prices could increase, raising the risk that inflation would broaden. Such a scenario would likely require a monetary policy response.
At the same time, the move to annual reviews of the Canada-United States-Mexico Agreement meant that trade uncertainty remained, though some businesses appeared to be adapting to the new trade environment. The possibility of new US tariffs was an ever-present downside risk to growth.
Members also discussed several risks centred on the domestic economy. Despite the volatility and geopolitical turbulence, members agreed that recent data and business survey evidence suggested the economy was adjusting to the shocks after a year of little growth. As a result, members had gained more confidence in the projection that growth would strengthen in the second half of this year. Yet, there were several risks that could influence whether this growth would be sustained later in the projection period:
- The pickup in growth could fade if businesses do not continue to adapt to US tariffs and restructure over time.
- The resumption of growth in exports and business investment could fail to materialize, given that both have fallen short of expectations in the past.
- The recovery in housing activity could stall given the large inventory of condos in Toronto and Vancouver, low population growth and ongoing affordability challenges.
- The resilience in consumer spending could wane if labour market conditions remain soft and hiring does not pick up.
Overall, given recent data, Governing Council was confident about the rebound in GDP growth in the second quarter. But there was a range of views among Governing Council members about the sustainability of the rebound beyond the near term. Members agreed they would need to monitor the data closely for signs that growth was broadening as projected in the July Report.
Beyond the clear risk to the inflation outlook from the ongoing conflict in the Middle East, members discussed additional risks to the outlook:
- The war had disrupted supply chains and transportation, raising cost pressures for several commodities and goods-producing industries. The extent of the pass-through of these costs to consumer prices was still uncertain. Gasoline refinery margins were also elevated, which could add pressure on inflation if margins do not normalize.
- Weak business investment could reduce productivity, limiting the economy’s capacity to grow without creating inflationary pressures.
- Excess supply could be less than assumed in the forecast, and inflationary pressures could build sooner as the economy recovers.
Overall, after a period of weak growth and a spike in inflation, growth was resuming and inflation was easing. Members agreed that this meant the trade-off facing monetary policy had diminished. However, uncertainty was still high.
Policy decision
Governing Council members considered the outlook for growth and inflation, as well as the risks to the outlook, and what these meant for the policy interest rate.
With growth expected to strengthen in the second half of the year and inflation projected to ease toward the 2% target by early 2027, Governing Council decided to maintain the policy interest rate at 2¼%.
Governing Council members agreed to look through the direct effects of higher global oil prices on inflation. So far, there was limited evidence that higher oil prices were spilling over to the prices of other goods and services. But the longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden. Members agreed to reiterate in their communications that they would not let higher oil prices lead to persistent inflation.
Members agreed that, based on the forecast, the current policy stance was appropriate for sustaining the economic recovery and bringing inflation back to target. However, they acknowledged that the forecast was subject to a high degree of uncertainty. They would continue to assess the strength of the Canadian economy and the outlook for inflation. Governing Council members agreed they would adjust monetary policy as needed to maintain Canadians’ confidence in price stability.