Bank of Canada Preview: On Hold Amid Technical Recession and Oil Risks

The Bank of Canada is expected to hold rates at 2.25% in June as a technical recession and softening labor market contain core inflation despite rising oil prices. BofA recommends fading market pricing of further hikes and favors CAD swap curve steepeners.

Key Takeaways

• 1.The Bank of Canada is expected to hold its policy rate at 2.25% on June 10 and likely through the end of 2026.
• 2.Canada entered a technical recession with negative GDP growth in 4Q25 and 1Q26, helping to contain core inflation.
• 3.Elevated oil prices from the Iran conflict pose an upside risk to headline inflation, which rose to 2.8% in April.

Table of Contents

• Key takeaways
• BoC will likely hold the rate for the rest of the year
• Econ: BoC likely on hold through year-end
• External uncertainty remains high: USMCA review and Iran conflict
• Canada fell into a technical recession, but April data point to a recovery
• Employment: labor relapsed in April, softness continues
• Core inflation cooled to target in April, while headline moved higher
• BoC: We continue to expect the BoC to hold through year-end
• CA Rates: Fade hawkish BoC
• FX: BOC on hold supportive of our FX views

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