Bank of Canada Stands Pat on Rates Amid Tariff Uncertainty

The Bank of Canada made its latest monetary policy decision on Wednesday, keeping its overnight rate target unchanged at 2.25%. This move was in line with the central bank's July outlook, but policymakers also warned that risks to inflation have increased due to rising oil prices and growing uncertainty over trade with the United States.

The Bank noted that Canada's economy rebounded strongly in the second quarter after a weak start to the year. The recovery broadened across consumption, housing, exports, and business investment, with the unemployment rate also edging lower in July. However, the Bank said labour demand remains subdued, and the economy continues to show excess capacity.

The Bank said inflation has hovered around 3% in recent months, driven largely by persistently higher gasoline prices. Excluding gasoline, inflation stood at 2.2% in July, while the Bank's preferred measures of core inflation remained close to 2%. The Bank also highlighted that upside risks to its inflation forecast have increased due to ongoing Middle East tensions and the Strait of Hormuz crisis.