Bank of Canada Holds Fire as Trade War Heats Up

The Bank of Canada is likely to keep its benchmark interest rate steady at 2.25% on Wednesday, as it navigates an escalating trade war between Ottawa and Washington.

Canadian economists say the breakdown of trade negotiations and tariff threats will make it difficult for the bank to raise or lower rates, with many expecting no change in policy.

The trade war could weigh on Canada's economy if exports contract, businesses hold off hiring and investing, and consumers become nervous. However, a Bank of Canada study found that Canadian countertariffs imposed last year raised prices by around 6% and added 0.3% to overall Consumer Price Index inflation.

Financial markets expect the central bank to remain on hold through the remainder of the year before starting to increase interest rates in early 2027, according to Bloomberg data.