BoC Seen Holding Fire on Rates Amid Trade Tensions
The Bank of Canada is set to meet on September 2 and leave interest rates unchanged at 2.25%. Despite heightened trade tensions with the US, there are no indications that near-term easing will be considered.
Canada's central bank has kept rates steady since its last easing in October 2025. In recent months, the Bank of Canada has pointed to potential tightening if elevated oil prices feed into core inflation or easing if increased US tariffs undermine the economy.
The July meeting did not provide explicit hints of rate moves in either direction, with Governor Tiff Macklem noting that the greatest risks remain from the Middle East conflict and the trade relationship with the US. Since then, Middle East risk has increased, and July's CPI came in slightly stronger than expected.
Core inflation remains close to the 2.0% target, but ex-food and energy CPI has seen three straight seasonally adjusted gains of 0.3%, hinting that core inflation is finding a base near 2.0%. The 3.3% annualized rise in Q2 GDP is stronger than the 2.5% expected by the BoC in July, with employment growth also healthy in the three months to July.