Bank of Canada Holds Rate as Trade Tensions Escalate

The Bank of Canada maintained its key policy rate at 2.25% on Wednesday, as expected, but highlighted growing risks to inflation and uncertain growth prospects due to escalating trade tensions with the US.

Canada's economy rebounded at an annualized rate of 3.3% in the second quarter, but now faces conflicting risks from the ongoing trade dispute. The new US tariffs, which took effect after the GDP data release, could hurt business and consumer sentiment, while Canada's retaliatory tariffs, set to take effect next week, may add to inflationary pressures.

The Bank of Canada stated that 'new U.S. tariffs and Canadian counter-tariffs will also raise costs for some businesses and could feed into consumer prices over time.' The central bank noted that the upside risks to inflation have increased while new tariffs make growth prospects more uncertain.