BoC Seen Holding Rates Steady Amid Tariff Uncertainty

The Bank of Canada is widely expected to keep interest rates steady at its September policy meeting. The central bank's overnight interest rate has been at 2.25% for nearly a year, and economists don't see it changing soon. Futures markets are giving the odds of a rate hold at 99%, with some analysts saying the Bank of Canada will take time to assess the impacts of new tariffs on Canadian goods.

The US imposed 50% tariffs on roughly 5% of Canadian exports last month, and Canada plans to retaliate with its own counter-tariffs starting September 8. This has led to erratic inflation in Canada, with the annual inflation rate currently at an annualized 3%, above the Bank's 2% target.

Bank of Canada Governor Tiff Macklem has warned that if energy prices lead to inflation elsewhere in the economy, interest rates might need to be raised. However, he also cautioned that any escalation of a trade fight between Canada and the US could push the central bank to cut interest rates to stimulate the domestic economy.