Policy rate held at 2.25 percent

The Bank of Canada's decision comes amid persistent global headwinds, notably the ongoing conflict in the Middle East, which continues to drive up energy prices and disrupt global supply chains.

This has placed a drag on global economic growth and contributed to inflationary pressures.

Trade policy uncertainty also remains elevated due to proposed US tariffs.

While the United States shows solid economic growth, supported by consumption and AI-related investment, the euro area's growth is subdued, impacted by higher energy costs.

China's economy, however, continues to benefit from strong exports.

Domestically, Canadian financial conditions have loosened since April, with buoyant global equity markets and volatile bond yields.

The Canadian dollar has also weakened against major currencies, adding another layer of complexity to the economic outlook.

Canada's economy experienced a weaker-than-expected first quarter, with GDP edging down by 0.1 percent.

This contraction was influenced by an unexpected decline in government spending and continued weakness in housing activity and business investment, despite a 1.4 percent rise in consumer spending.

Exports also fell, while imports increased significantly as inventories were rebuilt.

The labor market shows little change since the start of the year, with employment gains in May offset by earlier volatility.

The unemployment rate has fluctuated between 6.5 percent and 7 percent, standing at 6.6 percent in May.

Although growth is anticipated to resume in the second quarter, the economy is still expected to operate with excess supply, indicating slack in productive capacity.