BoC Hesitates Amidst Renewed Trade War Pressures

The Bank of Canada is set to make its interest rate decision on Wednesday amidst renewed trade war pressures. The bank has kept its benchmark rate at 2.25 per cent for nearly a year, and most economists still expect it to stick to the status quo.

However, the recent tariff volleys between Canada and the United States have changed the economic context. On August 22, the US imposed 50 per cent tariffs on roughly five per cent of Canadian exports, and Canada plans to retaliate with its own counter-tariffs starting September 8.

BMO chief economist Doug Porter said it's still possible for the two trade teams to reconvene and avoid further escalation in the weeks ahead. But absent a return to the negotiating table, he expects the third quarter of the year to look much like the early days of the trade war in 2025.

Tony Stillo from Oxford Economics believes the tariff measures themselves aren't enough to sink the economy into a recession, but it's the uncertainty around the long-term trading relationship with the US that might put a chill on growth. The Bank of Canada will likely lean against market expectations for a return to rate hikes and signal an easing bias.