Economists expect the Bank of Canada to hold its benchmark interest rate steady for the fifth straight time when it meets Wednesday, but its messaging could shed light on how it is navigating ongoing geopolitical uncertainties. The central bank held its policy rate at 2.25 per cent when it last met in April. Bank of Canada governor Tiff Macklem at the time did not rule out future adjustments depending on how risks play out.

He had said "monetary policy may need to be nimble" as the central bank watches effects from the war in Iran on energy prices, along with the outcome of the upcoming review of the Canada-United States Mexico Agreement. Financial market odds for another rate hold on Wednesday stood at around 95 per cent as of Friday, according to LSEG Data & Analytics. RBC senior economist Claire Fan said economic data released since the April decision "has not been particularly optimistic," but Friday's jobs report showing a decline in the national unemployment rate has somewhat balanced that out. "We don't really expect there will be a lot of actual actions when it comes to interest rates, so their language — particularly in terms of how they recognize the confluence of data that's been released since their last meeting — is the thing to watch," Fan said in an interview. She added officials will likely reiterate their message of needing to stay flexible but also cautious when it comes to future rate moves.

"For now, being on the sideline is the most prudent when you are driving in the fog," said Fan. Open "There simply isn't enough information currently for the Bank Canada ... to be able to make a reasonable or meaningful judgment in terms of really how that growth or inflation trade-off will shape out. 

Statistics Canada's latest GDP data last month indicated the country is in a technical recession, meeting the definition of two quarterly contractions in a row. The first quarter saw an annualized decrease of 0.1 per cent, though Fan said many economists believe the overall picture doesn't resemble previous economic downturns which have been characterized by deeper, more persistent and "broad-based" declines.

Still, the economy is currently in "no fit state for higher rates" given that weakness, said Bradley Saunders, North America economist at Capital Economics. He said the Bank of Canada struck a "decidedly hawkish tone" when it kept the policy rate steady in April.

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