Bank of Canada Weighs Tariff War Concerns in Interest Rate Decision

The Bank of Canada's decision to hold its key policy rate steady at 2.25 per cent on September 2 was influenced by concerns over a renewed trade dispute with the United States.

Fears of a tariff war weighed heavily on the minds of central bank policymakers, who felt that it could dampen business and consumer confidence.

The US had imposed 50 per cent tariffs on roughly $28 billion worth of Canadian goods on August 22, prompting Canada to impose counter-tariffs. The Bank of Canada did not view these retaliatory duties as a significant inflationary risk, however, as they targeted intermediate inputs like steel and goods that had Canadian substitutes.

The central bank is keeping an eye on high energy prices tied to the war in Iran, which could lead to increased costs for businesses and consumers. Policymakers discussed the possibility of adjusting the policy rate if cost pressures start to spread beyond gasoline prices.