The Bank of Canada announced today that it will maintain its policy interest rate at 2.75%. The decision, made by the Governing Council, comes amid ongoing uncertainty over US tariffs on Canadian goods and their effects on trade and economic conditions.

Governor Tiff Macklem, speaking alongside Senior Deputy Governor Carolyn Rogers, outlined three main factors behind the rate hold: continued unpredictability around US trade policy, evidence of resilience in Canada’s economy despite disruptions, and inflation levels near the central bank’s 2% target but with signs of underlying pressure.

“Today, Governing Council held the policy interest rate at 2.75%. This decision reflects three main considerations,” Macklem said. “First, uncertainty about US tariffs on Canada is still high. Discussions between Canada and the United States are ongoing, and US policy remains unpredictable.”

He added: “Second, while US tariffs are disrupting trade, Canada’s economy is showing some resilience so far.” On inflation trends he stated: “Third, inflation is close to our 2% target, but we see evidence of underlying inflation pressures.”

In conjunction with its July Monetary Policy Report (MPR), the Bank chose not to provide a conventional forecast for growth or inflation due to ongoing tariff uncertainty. Instead, it presented three scenarios based on current tariffs remaining in place, escalation of tariffs, or de-escalation from current levels. These scenarios are meant to capture possible paths for growth and inflation given uncertain trade policies.

Macklem noted that “the increases we have seen in US effective tariff rates are less than were threatened. But they are still outside post-war historical experience.” He explained that scenario analysis would help guide monetary decisions while outreach efforts were being stepped up to better understand regional impacts across Canada.

He also emphasized that the absence of a traditional forecast does not limit the Bank’s ability to make monetary policy decisions but requires more focus on risks and readiness to respond quickly as new information emerges.

Recent developments include negotiated tariff agreements between the United States and some trading partners which have reduced fears of an escalating global trade war; however, these agreements indicate no return to open trade policies. Global economic impacts have been less severe than initially feared; though major economies’ trade has slowed due to US measures—US growth has moderated but employment remains solid while China has offset lower exports to America with higher exports elsewhere.

Canada experienced strong economic growth in early 2025 as businesses moved quickly ahead of potential tariffs. However, data suggest contraction in the second quarter following sharp declines in exports to the United States—partly reflecting earlier stockpiling and reduced American demand linked to new duties.

Canadian business investment and household spending remain subdued amid ongoing uncertainty. Certain sectors exposed directly to new US tariffs face significant challenges; other parts of the labor market continue growing despite job losses tied to cross-border trade. The unemployment rate has risen modestly to 6.9%.

Under its main scenario—assuming no further changes in tariff arrangements—the Bank projects GDP growth resuming after this quarter’s contraction: about 1% annualized growth through late 2025 as exports stabilize and household spending rises gradually. Growth could increase further into 2026-27 but overall output would remain permanently lower because of persistent tariffs.

On prices: headline CPI inflation sits just below 2%, largely due to elimination of carbon taxes; however underlying price pressures appear stronger than last year—now estimated around 2½%. Most increases come from non-energy goods while shelter cost inflation continues easing somewhat.

Surveys show business expectations for future price increases have moderated since early this year whereas consumer expectations remain elevated. In its baseline scenario upward cost pressures from tariffs are roughly balanced by downward forces such as a stronger Canadian dollar—which helps reduce import costs—and weaker domestic demand linked to excess supply in the economy.

Alternative scenarios show different outcomes: if tariffs fall back (de-escalation), both GDP outlooks improve and direct cost pressures ease; if they rise further (escalation), growth weakens while price pressures increase due directly from higher costs imposed by additional barriers.

Many businesses report facing extra expenses related both finding alternative suppliers or markets—a factor difficult for policymakers fully evaluate—which could add upward pressure on consumer prices over time.

“At this rate decision,” Macklem concluded,“there was clear consensus to hold our policy rate unchanged...We also agreed that we need proceed carefully with particular attention risks uncertainties facing Canadian economy...If a weakening economy puts further downward pressure on inflation...there may be a need for a reduction in the policy interest rate.”

The Bank reaffirmed its commitment ensuring Canadians retain confidence price stability during ongoing global shifts—and signaled continued vigilance monitoring developments affecting economic performance domestically.