Bank of Canada Holds Rate at 2.25% as Tariff Risks Cloud Outlook
Bank of Canada keeps policy rate at 2.25% for 11th month, citing increased inflation risks and growth uncertainty from escalating US-Canada trade tensions.
The Bank of Canada has left its benchmark policy rate unchanged at 2.25%, marking the eleventh consecutive month of steady borrowing costs. The decision, widely anticipated by markets, comes as the central bank weighs the economic fallout from an escalating trade dispute with the United States.
In its statement, the bank acknowledged that the risks to inflation have increased, while new tariffs have made the growth outlook more uncertain. It specifically noted that fresh US tariffs on Canadian goods, alongside Canada's planned retaliatory duties, would raise costs for businesses and could eventually feed into consumer prices.
The latest round of US tariffs—set at 50% on certain Canadian imports—took effect after Canada reported a robust 3.3% annualized growth rate for the second quarter. Canadian counter-tariffs, designed to match US measures dollar-for-dollar, are scheduled to take effect next week and could add further upward pressure on domestic prices.
Economists suggest the conflicting pressures—weaker growth from US tariffs versus potential inflation from Canadian retaliation—have given the central bank room to hold steady and assess the impact of the trade measures before adjusting policy. The bank's decision reflects a cautious approach amid an unusually uncertain economic environment shaped by cross-border trade policy.