Sign in Subscribe
Banks (Finance)

Bank of Canada Holds Key Rate, Cites Tariff Uncertainty

Strategic Insights

— 1 min read

The Bank of Canada decided to maintain its overnight lending rate at 2.75 per cent, defying expectations of a potential rate cut due to mounting trade tensions with the US. Governor Tiff Macklem acknowledged the introduction of tariffs by US President Donald Trump has led to a permanently smaller global economy and a smaller Canadian economy, even if a trade deal is reached. The bank's monetary policy report predicts a Canadian economic growth rate of 1.3 per cent in 2025 and 1.1 per cent in 2026, with 95 per cent of Canadian trade with the US being compliant with the Canada-U.S.-Mexico agreement on trade. However, the report also highlights the potential for a recession if the US tariff situation escalates.

Key Takeaways:

  • The Bank of Canada's decision to maintain its key interest rate at 2.75 per cent reflects its cautious stance on the economic impact of US tariffs.
  • Governor Tiff Macklem warned of a permanently smaller Canadian economy due to Trump's trade war, citing a 1.5 per cent annualized contraction in the second quarter.
  • The bank's monetary policy report predicts a Canadian economic growth rate of 1.3 per cent in 2025 and 1.1 per cent in 2026.
  • Ontario Premier Doug Ford criticized the bank's decision, arguing that lower interest rates are necessary to stimulate economic growth and prevent job losses.
  • BMO chief economist Douglas Porter stated that the bank is wisely hedging its bets on rate cuts, citing ongoing trade uncertainty as a major factor.
  • Markets are pricing in a 50 per cent chance of a rate cut by the end of the year, with a 10 per cent chance of two cuts.

Statistics:

  • 95 per cent of Canadian trade with the US is compliant with the Canada-U.S.-Mexico agreement on trade.
  • 1.5 per cent annualized contraction of the Canadian economy in the second quarter.
  • 50 per cent chance of a rate cut by the end of the year.
  • 10 per cent chance of two rate cuts.
  • 2.75 per cent overnight lending rate.
  • 3 straight policy meetings without a rate change.

Sources:

  • The Bank of Canada. "Monetary Policy Report - July 2025".
  • The Bank of Canada. "Press Release".
  • X (Ontario Premier Doug Ford). "Post on X".
  • BMO (Douglas Porter). "Market commentary".

Read more