Bank of Canada Holds Rate Amid Rising Inflation Risks

The Bank of Canada has maintained its policy rate at 2.25%, despite concerns over rising inflation risks and uncertainty surrounding trade with the US. In a move that aligns with its July outlook, policymakers opted to keep the overnight rate target unchanged on Wednesday. The decision comes as Canada's economy shows signs of recovery, particularly in consumption, housing, exports, and business investment.

However, the central bank warned that inflation risks have increased due to higher gasoline prices, which have driven overall inflation above 3%. Excluding gasoline, inflation stood at 2.2% in July, while core inflation measures remained close to 2%. The Bank cited ongoing Middle East tensions and the Strait of Hormuz crisis as factors contributing to these risks.

The decision was seen as a cautious move by policymakers, who are closely monitoring the impact of US tariffs on Canada's economy. While the Bank noted that labour demand remains subdued, it acknowledged that excess capacity in the economy continues to pose challenges.