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CA: BoC Monetary Policy Report
Highlights
In its July Monetary Policy Report, the Bank of Canada revised down its growth projection for 2026 to 0.7 percent from 1.2 percent in its April MPR. By contrast, it revised up its projections for 2027 and 2028 to 1.8 percent from 1.6 percent, and to 1.8 percent as well from 1.7 percent, respectively.
For the third quarter of 2026, it expects an annualized GDP growth of 1.5 percent after 2.5 percent in the second quarter (revised down from 1.5 percent). The rebound follows two consecutive quarters of contraction in Q4 2025 and Q1 2026."Canada’s economy is showing signs of improvement," the BoC said. It noted resilient consumers and adapting businesses.
It revised up its inflation projection to an average of 3.0 percent in the second quarter from 2.6 percent initially projected. The CPI is projected to average 2.5 percent in the third quarter of this year. The MPR notes that oil prices" have fallen considerably since their peak in April, though they remain volatile".
After an expected"elevated" inflation rate in June, the BoC expects price growth to slow in the coming months, easing to about 2.5 percent by August.
The Bank's own measures of core inflation - the average of CPI-trim and CPI-median - are expected to hover around the 2.0 percent target, averaging 2.1 percent in the second quarter and 2.0 percent in the third quarter. The Bank overall qualified inflation expectations as"anchored".
The central bank expects global growth to slow to 2.75 percent this year before recovering about 3.25 percent in 2027 and 2028.
It has not changed its tariff assumptions since April even as the Canada-United States-Mexico agreement has moved to annual reviews. It estimates the average US tariff rate on Canadian goods at 5.0 percent in July, little changed from 5.1 percent in April. The average Canadian tariff on U.S. goods is unchanged at 1.5 percent.
While the Middle-East conflict is weighing on global growth prospects,"artificial intelligence (AI) is supporting economic activity in a growing number of countries.
Definition
Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).
Description
Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.