Governing Council minutes reveal differing views over whether Canada's Q2 recovery will hold
Members of the Bank of Canada's Governing Council were confident the economy had rebounded in the second quarter of 2026, but were divided over how long that momentum would last, according to deliberations released Wednesday.
The central bank held its policy rate at 2.25% on July 15, its sixth consecutive hold. It projected annualised GDP growth of about 2.5% for the April-to-June period, a rebound from an economy that had broadly stalled over the prior year.
The minutes, covering discussions that began July 7, show the council believed Canada was adjusting to the twin shocks of the Middle East conflict and persistent US trade uncertainty. But confidence had its limits.
"There was a range of views among Governing Council members about the sustainability of the rebound beyond the near term," the Bank stated, adding that "members agreed they would need to monitor the data closely for signs that growth was broadening as projected in the July Report."
Inflation risks linger as oil stays volatile
Oil prices are the defining complication. The conflict in the Middle East drove global benchmark crude to roughly US$120 per barrel in April before a provisional US-Iran agreement brought it back to around US$75 in June. Renewed strikes during Governing Council's own deliberations pushed prices higher once more.
Inflation, which had held near the 2% target for more than 18 months, climbed to 3.2% in May. Excluding gasoline, it stood at 2.2%, with core measures holding near 2%.
New tariffs announced by U.S. President Donald Trump are adding fresh uncertainty to Canada's economy, raising concerns about homebuyer confidence, interest rates, and the path forward for the housing market.https://t.co/2IGPBLg8pM
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 22, 2026
The council agreed to look through the direct effects of higher energy costs on consumer prices, while drawing a clear line on patience.
"The longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden," the Bank stated, with members pledging they "would not let higher oil prices lead to persistent inflation."
Some members also flagged concern about upward drift in medium-term inflation expectations, even as longer-term expectations held firm.
BMO chief economist Doug Porter, speaking to Canadian Mortgage Professional after the July 15 announcement, captured the dilemma precisely.
"I've been very much of the view that the Bank's not going to raise rates, that they're going to decide they don't have to," Porter said.
"The longer these oil prices stay at these levels, the less confident I am in that call. It does increase the risk that the Bank at one point might feel that they have to raise interest rates."
Housing and trade weigh on the second half
Governing Council identified several domestic risks capable of derailing the recovery. It warned that "the recovery in housing activity could stall given the large inventory of condos in Toronto and Vancouver, low population growth and ongoing affordability challenges."
Resale activity had returned to modest growth in Q2 2026 after two consecutive quarters of contraction, though the rebound varied by region.
Labour market conditions remained soft, with the unemployment rate at 6.5% in June — within the 6.5%-to-7% range where it has spent most of the past year.
On trade, the minutes noted that "the possibility of new US tariffs was an ever-present downside risk to growth." For brokers monitoring how the latest US tariff escalation is reshaping the Bank of Canada's rate outlook, most economists still expect the central bank to hold for the rest of the year.
Porter noted the Bank's medium-term inflation forecast had held steady despite months of oil volatility.
"They still, at their heart, believe that inflation is going to come back down to 2% in the medium term," he told CMP.
"And they very much view this as a temporary runup in inflation, what we're dealing with now."
The council concluded that "based on the forecast, the current policy stance was appropriate for sustaining the economic recovery and bringing inflation back to target," with growth projected to strengthen from 0.7% in 2026 to 1.8% in both 2027 and 2028.
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