Canada Economics Weekly: BoC focus shifting to domestic risks

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Canada Economics Weekly: BoC focus shifting to domestic risks

Canada Economics Weekly

16 July 2026 Citi Research

The BoC left rates unchanged this week and continues to give very little indication

of a possible move in policy rates, weighing the upside risks to inflation and policy

rates with downside risks.

But we saw a few indications that officials both see the need for rate hikes as much

less than earlier in the year, and that they are slowly coming to a realization that

softer domestic activity may require lower rates:

1) Guidance in the policy statement now indicates that officials are

“prepared to adjust monetary policy as needed”, which to us suggests less

urgency than previous guidance that indicated officials “stand ready to

respond as needed”. Whereas previous guidance suggested a sudden

catalyst (higher inflation from energy prices) that required a reaction, that

shock may now have passed.

2) The complete guidance in the statement reads:

Governing Council will continue to assess the strength of the Canadian

economy and the outlook for inflation, and is prepared to adjust monetary

policy as needed.

The mention of considering the strength of the economy in possible

adjustments to policy is new, and inherently dovish for an economy

running persistently below potential growth.

3) For the first time, officials tied these domestic conditions into their list of

risks that may impact inflation and thus policy rates.

The two biggest risks to the projection are still the conflict in the Middle

East and our trade relationship with the United States. There are also

domestic risks to our inflation outlook.

While Macklem’s remarks noted upside inflation risks if “the economy

recovers faster than expected”, the bigger risk for inflation from domestic