The June 10 Bank of Canada decision is days away and the signals are mixed
The Bank of Canada is widely expected to hold its overnight rate at 2.25% when it meets on June 10, with a contracting economy, eroding labour market, and the shadow of the Canada–United States–Mexico Agreement (CUSMA) renewal converging to make any policy move difficult to justify.
CPA Canada chief economist David-Alexandre Brassard pointed to a widening gap between headline inflation and the demand weakness underneath.
"We're seeing a clear divergence between headline inflation and underlying economic conditions," Brassard said.
"Higher oil prices are lifting inflation in the short term, and subsequently raising the cost of goods, but weak demand is limiting businesses' ability to raise prices on services."
Statistics Canada confirmed on May 29 that real GDP contracted at an annualized rate of 0.1% in the first quarter. That's the second consecutive quarterly decline after a downwardly revised 1.0% fall in Q4 2025.
Read more: What Canada's GDP miss means for the next BoC rate call
Labour market signals harden the case
The labour market reinforces the argument for patience. More than 110,000 jobs have been lost in 2026, and while wages continue to support household spending, CPA Canada flagged an emerging imbalance.
"While wage growth is still supporting demand, it is now outpacing productivity — raising questions about how long that can continue," Brassard said.
Andrew Hencic, director and senior economist at TD Economics, argued that the headline GDP miss likely overstated the true weakness, but reached an identical policy conclusion: "Our view remains that as the economy continues to operate below capacity, and if the inflation shock fades, the Bank of Canada will remain on the sidelines."
Avery Shenfeld, chief economist at CIBC Capital Markets, was equally direct: "We don't have reason to alter our call for the Bank of Canada to be on hold this year, in part because we have no greater visibility than the Bank on how long the oil shock will persist."
Read more: Canada's economy is struggling, but a recession hasn't arrived yet: top economist
The Bank of Canada is facing growing pressure to raise interest rates, with financial markets currently pricing in more than two full hikes before the year is out.https://t.co/duLBPJOyPL
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 19, 2026
CUSMA adds the wild card
Trade policy remains the most consequential unknown for mortgage professionals watching June 10.
Desjardins noted in its May report that the upcoming CUSMA joint review represents a headwind that should keep the Bank on hold in the near term. That view aligns with Brassard's read of the macro picture.
"Given easing core inflation, a weaker economic backdrop and ongoing uncertainty around the upcoming CUSMA renewal, the Bank is likely to conclude that the risks of raising rates significantly outweigh the benefits," the report said.
However, the back half of 2026 remains subject to upward rate risk if energy prices and CUSMA uncertainty prove more persistent than expected.
Brokers should also take note of how the Bank of Canada is urging calm amid Canada's technical recession label — senior deputy governor Carolyn Rogers' message last week was that policymakers are still reading the data carefully before drawing conclusions.
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