Bank of Canada Holds Rates Amid Trade Uncertainty and Softening Growth

In his opening statement:

Governor Tiff Macklem announced that the Bank of Canada would hold its policy rate at 2.75%, citing three key reasons: ongoing U.S. trade uncertainty, early signs of resilience in the Canadian economy, and persistent underlying inflation pressures. Due to the unpredictability of U.S. tariff actions, the July Monetary Policy Report (MPR) does not include a traditional forecast. Instead, the Bank presented three scenarios—a current tariff baseline, an escalation, and a de-escalation—to capture the range of potential outcomes.

While global growth has been more resilient than expected, Canadian momentum has weakened. Q1 2025 saw strong growth as firms pulled exports forward ahead of tariffs. However, Q2 likely saw a 1.5% contraction, as exports to the U.S. dropped and demand weakened. Uncertainty is restraining household and business spending, and job losses are concentrated in trade-exposed sectors. Despite this, employment continues to rise elsewhere, and business and consumer sentiment—though subdued—is improving modestly.

CPI inflation stands just below 2%, mainly due to the elimination of the carbon tax, but core inflation has risen to around 2.5%, driven by non-energy goods. Shelter inflation remains elevated, though it is easing. Business inflation expectations have softened, but consumer expectations remain elevated. In the Bank’s central scenario, inflation is expected to remain near 2%, with balanced risks. However, higher tariffs or trade-related costs could push prices higher, while economic slack may exert downward pressure.

Macklem emphasized that the Bank is closely monitoring new data and will adjust policy as needed. While the policy rate remains unchanged, the Governing Council is open to a rate cut if economic conditions deteriorate further and inflationary pressures from tariffs are contained. The Bank remains committed to preserving price stability while supporting growth during this period of heightened global uncertainty.

For the full statement CLICK HERE