Canada Holds Rates Amid Tariff and Oil Risks

The Bank of Canada has decided to keep its policy rate at 2.25% despite concerns over new US tariffs and oil disruptions that could impact Canada's growth rebound and inflation outlook.

Governor Tiff Macklem stated that the data since July has been in line with their forecast, so policymakers chose not to make any changes. The economy appears firmer than earlier this year, with output rebounding in the second quarter, housing activity holding up, consumer spending improving, and exports plus business investment increasing.

However, there are two outside shocks that are causing concern: new US tariffs on Canadian goods and oil disruptions due to the Iran conflict. Macklem noted that the targeted items make up about 5% of exports to the US, but uncertainty could still lead businesses to delay hiring and investment.

The Bank is watching for potential spillovers into broader prices and will adjust its policy if necessary. It can 'look through' higher gas prices if they're a temporary bump to overall inflation, but a second-round effect would change the story.