In a decision that will affect Canadian households and businesses for the coming year, the Bank of Canada (BoC) confirmed on Wednesday that its key overnight rate will remain at 2.25%. The central bank said it expects to keep the policy rate unchanged for at least the next twelve months, giving the economy time to recover from lingering trade uncertainties and a modest inflation outlook.
Why the BoC is staying the course
Policymakers have left rates steady since October, watching for signs that inflation might climb out of the 1‑3% target range. While July’s headline inflation sat at the top of that band, core inflation has stayed relatively stable, suggesting that consumer demand remains weak. Combined with an anticipated modest economic rebound, the BoC believes it has room to pause before considering any hikes.
Trade talks with the United States influence the outlook
The latest Reuters poll of 35 economists was taken after Canadian Prime Minister Mark Carney walked away from a round of tariff negotiations with the United States on August 22. Carney announced retaliatory tariffs and support measures for Canadian businesses hurt by the breakdown. The poll showed all respondents expected the rate to stay on hold at the September 2 policy meeting, matching market expectations.
Nearly half of the economists (47%) forecast at least one rate increase by the end of the second quarter of 2027. The BoC is projected to raise the rate to 2.50% in the fourth quarter of next year, a forecast unchanged from a July poll.
Potential inflationary pressures
Some analysts warned that a weaker Canadian dollar, a direct result of the stalled trade talks, could add inflationary pressure. “The Canadian dollar has already weakened because of this failure of the trade talks. So that is going to be more of an inflationary impact,” said Jennifer Lee, senior economist at BMO Capital Markets.
However, most economists agree that any escalation in the trade dispute is likely to dampen gross domestic product growth rather than spark higher inflation. Federal support measures for affected sectors are expected to offset some of the negative impact.
Economic backdrop
Canada’s economy is believed to have grown at an annualized 3.4% in the most recent quarter, emerging from a technical recession, according to a separate Reuters poll awaiting official data. The country’s exports to the United States remain protected under the United States‑Mexico‑Canada Agreement (USMCA), which expired on July 1 and is now under annual review by the United States.
“The way I think about the recent tariffs is, it helps to offset some of the stronger data we’ve seen over the last few months,” said Robert Both, macro strategist at TD Securities. He added that the economic impact of the tariffs is likely narrow enough to allow the BoC to consider a rate hike next year.
What this means for Canadians
Keeping rates steady means mortgage borrowers will continue to benefit from relatively low borrowing costs, while businesses can plan investments without the uncertainty of sudden rate spikes. At the same time, the BoC’s watchful‑waiting stance signals that policymakers remain vigilant, ready to act if inflation pressures rise or if trade conditions improve.
For Canadians watching the cross‑border trade relationship, the decision underscores how closely monetary policy is tied to broader economic and diplomatic developments. As the United States reviews the USMCA on an annual basis, both nations will be monitoring how any changes affect trade flows, currency stability and, ultimately, the cost of living for families on both sides of the border.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
