Bank of Canada Holds Key Rate at 2.25%, Warns Trade War Threatens Recovery

The Bank of Canada has maintained its overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. This decision was widely expected, but it reflects the bank's difficult position in balancing between tariff-driven inflationary pressures and the risk that a prolonged trade war will slow economic growth.

The bank has noted that the continuing conflict in the Middle East is keeping energy prices high, while new U.S tariffs and Canadian counter-measures have been announced following the breakdown of trade talks between Canada and the United States. Despite these headwinds, global economic growth remains solid due to consumer spending and AI investments.

In Canada, consumption showed solid gains and housing activity has shown some rebound. Exports and business investment were up sharply, while labour market conditions have improved in recent months with an unemployment rate of 6.4% in July.