Erik Hertzberg and Randy
(Bloomberg) – Bank of Canada considered lowering interest rates at its last meeting, but trade uncertainty and sticky inflation forced officials to keep borrowing costs stable.
Policymakers discussed a quarter-point point ruled at the July meeting, but the ongoing trade dispute with the United States, the resilience of the Canadian economy and the growing risk of inflation ultimately led the bank to keep its policy interest rate at 2.75% for its third consecutive session.
“It is too early to assess how tariffs and trade rewiring affect Canada’s economic activity and inflation,” the bank said in a review summary released on Wednesday.
Members agreed that they “need to wait for clearer conclusions to come to firm conclusions”, explaining whether there is more room for relaxation if the economy continues to weaken and core inflationary pressures. This is consistent with news from Gov. Tiff Macklem at a press conference after his decision in July.
Some on the council suggested that they think interest rates may not need to be lowered.
“Some members believe that reducing policy rates to the middle of the neutral rate range estimated by banks, the economy shows resilience to U.S. tariffs, and the bank may have provided enough support to help the transition.”
Others have marked ongoing economic slackness, saying further monetary support may be needed, especially if the labor market worsens further.
Policymakers also discussed the role of monetary policy, saying “This is not suitable for shock due to the decline in total supply.”
Communications combine to show that while officials recognize that further relief may be needed, they are silent and move forward at the pace of layoffs until they can better address the evolving trade situation with the United States and its impact on Canada’s exports and the broader economy.
Unlike the Fed, the bank’s review summary does not outline the views of individual members or their preferred monetary policy action plan.
Other key points:
- Policymakers expect the economy to sign contracts in the second quarter as exports plummet
- They also expect business and residential investment to decline, while consumption and government spending will rise
- Overall, they see more supply in the economy
- They agree that the labor market remains soft
- Some members expressed concern about the risk of further increasing unemployment
- Policymakers don’t see tariffs causing sharp rise in inflation
- They noted that the impact of tariffs on consumer prices so far seems to be “modest”, with increased wages and unit labor costs continuing to ease
- They saw the appreciation of Loonie who lowered import prices, with no signs that inflation expectations have been laid off
- Officials reiterated that they believe the basic inflation rate is about 2.5%, although they do not provide the source or indicator for the calculation
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Last modified: August 13, 2025
