The Bank of Canada announced on Wednesday that it would keep its benchmark interest rate steady at 2.25%, marking the sixth consecutive meeting where policy has been left unchanged, a decision that aligned with widespread market expectations.

The central bank indicated that despite a weak economic performance at the start of the year, the economy is projected to achieve annualized growth of 2.5% in the second quarter as some temporary drags fade.

In prepared remarks, Bank of Canada Governor Tiff Macklem stated that the Canadian economy continues to face a high degree of uncertainty, but officials are growing more confident that the economy is gradually overcoming headwinds such as tariff adjustments and slowing population growth.

He noted that while the Governing Council remains prepared to adjust the policy interest rate if necessary, the current level of 2.25% is appropriate to help guide inflation back to the 2% target while supporting economic recovery.

The unexpected contraction in the Canadian economy at the beginning of the year exceeded the central bank's forecasts. The bank had previously projected annualized growth of 1.5% for both the first and second quarters of this year.

Governor Macklem highlighted that Canadian gross domestic product has shown essentially no growth over the past year, primarily impacted by new tariffs, persistent uncertainty, and a deceleration in population growth.

In its latest Monetary Policy Report, the central bank pointed out that temporary disruptions to auto production and an unexpected lag in government spending in the first quarter are expected to reverse in the coming months.

The bank now forecasts that the Canadian economy will expand at an annualized rate of 2.5% in the second quarter.

Regarding inflation, Canada's inflation rate rose to 3.2% in May, influenced by a global energy price shock stemming from the conflict in Iran, with gasoline prices surging significantly during the spring.

However, the central bank noted that after excluding gasoline prices, overall inflation remains close to the 2% target, suggesting that the rise in energy costs has not yet spread significantly to other consumer goods and services.

With renewed hostilities between the United States and Iran escalating, international oil prices have recently moved higher again.

The Bank of Canada cautioned that gasoline prices are expected to remain highly volatile and will depend heavily on developments in the Middle East.