The European Central Bank (ECB) is expected to maintain its deposit rate at 2.25% in July, with Rabobank's Bas van Geffen noting that a rate hike would only be considered in the event of a significantly stronger energy shock. The recent re-escalation of the Iran war has increased upside inflation risks, but most ECB policymakers are seen as preferring to wait until September for any potential rate hike. Rabobank forecasts one additional hike in September, though this may be insufficient if energy price pressures worsen, and the escalation in the Middle East adds upside risks to policy rate projections for Q4 2026 [1].
Similarly, the Bank of Canada (BoC) has kept its policy rate unchanged at 2.25% for the sixth consecutive meeting. Brown Brothers Harriman (BBH) reports that updated BoC projections show core inflation near 2% year-on-year for Q3 and a slowdown in GDP growth from 2.5% in Q2 to 1.5% in Q3. This benign outlook has led markets to pare back roughly 50 basis points of priced tightening, as the Canadian economy remains in excess supply. The BoC is seen as stepping back from forward guidance, indicating no rush to raise rates [2].
In the United States, TD Securities expects June retail sales to stagnate at 0.0% month-on-month, below the consensus of 0.2%. Weakness is anticipated in the control group (0.2% vs. consensus 0.5%), negative gasoline sales due to falling prices, and a decline in food services (-0.8%), partially offset by strong auto sales (3.0% m/m). The June Producer Price Index (PPI) showed a 0.3% decline, attributed to negative food and energy prices. Despite a slight upward revision to core PCE estimates, the overall inflation picture remains subdued, and the Federal Reserve is expected to keep rates on hold in July [3].
Across all three central banks, the prevailing sentiment is caution, with policymakers opting to hold rates steady amid mixed signals on inflation and growth. While geopolitical risks and energy prices are being closely monitored, the baseline scenario for both the ECB and BoC is to maintain current rates, with only a tail risk of hikes in the near term. US economic data further supports a pause in rate adjustments, as consumer spending and inflation remain soft.
CONCLUSION
Central banks in Europe, Canada, and the US are maintaining a cautious stance, holding rates steady as inflation and growth data remain subdued. Market expectations for further tightening have diminished, with only tail risks of hikes if energy prices surge. The overall takeaway is a medium-impact event, reflecting stability and a wait-and-see approach among policymakers.