The Bank of Canada held its overnight rate at 2.25% on Wednesday, its seventh straight pause, as fresh U.S. tariffs collide with rising inflation. Analysts read the statement as carrying a hawkish tilt on prices even as the trade war threatens growth.
Trade war forces a wait-and-see hold
The Bank of Canada left its key rate unchanged at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The decision came after the collapse of U.S.-Canada trade talks, which triggered 50% U.S. tariffs on a wide range of Canadian goods. Canada has announced retaliatory tariffs covering more than $20 billion in goods, set to take effect on Sept. 8.
This was the seventh consecutive hold, with the rate now well down from a recent peak of 5%. Michael Constantino, CEO of WeBull Canada, said "The BoC is in a wait-and-see mode, but that doesn't mean it's standing still", according to a note issued after the decision.
Inflation runs hot as growth accelerates
Canada's economy grew 0.8% in the second quarter, up from 0.1% in the first quarter. Meanwhile the unemployment rate edged down to 6.4% in July. But headline inflation accelerated to 3% year-on-year in July, up from 2.8% in June, driven largely by high oil prices tied to the Middle East conflict. Core inflation, however, stayed close to 2%, with little sign yet of energy costs spreading to other prices.
Bank of America economist Carlos Capistran wrote that trade uncertainty will likely weigh on growth. Goldman Sachs, separately, forecasts a 0.3 percentage point hit to GDP growth and a 0.3 percentage point boost to inflation from the tariffs.
Statement carries a hawkish lean
InvestingLive's analysis of the statement called the tone modestly hawkish, since the Bank explicitly flagged that upside risks to its inflation forecast have increased even as the recovery broadens. The Bank's next rate announcement is scheduled for Oct. 28, 2026, when its next Monetary Policy Report will also be released.
Sources: CNBC, ActionForex, InvestingLive
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