The Bank of Canada’s Governing Council released a summary of its deliberations leading up to the monetary policy decision on July 30, 2025. The meetings began on July 22, 2025, and were presided over by Governor Tiff Macklem. Other attendees included Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes, and Michelle Alexopoulos.

The council started by discussing international economic developments. Ongoing tariffs and trade negotiations between the United States and other countries remained central to their talks. Recent trade agreements with Japan and the European Union had reduced some risk of a prolonged global trade war. However, uncertainty persisted as the United States moved away from free and open trade policies.

Council members noted that the global economy had been more resilient to recent trade disruptions than expected. In the United States, domestic demand was supported by a strong labor market, investment in artificial intelligence, and an equity market recovery. Still, US growth was moderating due to slower household spending amid ongoing uncertainty about trade policy. China’s growth also slowed but was offset by increased exports to other countries; meanwhile, euro area growth moderated due to weaker domestic demand.

Financial conditions had improved since turmoil in April 2025. Equity prices returned to levels seen at the start of the year as markets reassessed tariff impacts. Longer-term government bond yields rose in many countries because of high debt issuance and revised expectations for monetary policy easing. The Canadian dollar strengthened against the US dollar but weakened against other currencies.

Domestically, Canada’s economy appeared to have contracted in the second quarter after robust first-quarter growth driven by businesses rushing shipments ahead of new tariffs. This activity unwound in Q2 with a sharp drop in exports while consumption and government spending increased but business and residential investment declined.

Members discussed how persistent uncertainty would affect investment and consumption going forward. They agreed that “so far, the Canadian economy overall had shown some resilience.” Business and consumer confidence improved recently but remained low.

The labor market remained soft with job losses concentrated in sectors reliant on trade while employment grew elsewhere in the economy. Although job growth picked up in June 2025, unemployment stood at 6.9%, with youth unemployment notably higher than earlier in the year.

Due to heightened uncertainty around US trade policy—including questions about future tariffs—the council decided not to provide a conventional forecast for growth or inflation in its July Monetary Policy Report (MPR). Instead, three scenarios were presented:

- The current tariff scenario assumes existing tariffs remain; under this scenario “economic growth resumes in the third quarter and inflation remains around 2%.”

- A de-escalation scenario explores lower US tariffs; here “growth rebounds and inflation is below 2%.”

- An escalation scenario considers significantly higher tariffs; under this model “the economy falls into recession and inflation rises to around 2½% next year.”

Council members agreed these scenarios covered a wide range of possible outcomes for Canada’s economy given ongoing uncertainties about how households, businesses, and governments will adapt.

Much discussion focused on indicators of inflationary pressures. Consumer price index (CPI) inflation was measured at 1.9% in June—pulled down by removal of the consumer carbon tax—but excluding indirect taxes CPI inflation was at 2.5%. Inflation for non-energy goods rose partly due to past depreciation of the Canadian dollar while shelter services saw easing price increases.

Based on several indicators, underlying inflation was assessed at about 2½%, up from around 2% late last year; core measures ranged between 2.5%–3%. Surveys indicated business expectations for inflation eased slightly while consumer expectations did not change much.

The council noted that so far “the impact of tariffs on consumer prices appeared to be modest.” Wage increases continued slowing as did unit labor costs; appreciation of the Canadian dollar helped reduce import prices.

However, members examined whether strength in non-energy goods price inflation could persist as direct cost impacts from tariffs only recently began appearing in data—and additional business costs from finding new suppliers might further increase consumer prices over time.

As they considered monetary policy options—either maintaining or reducing rates—the council weighed risks related mainly to ongoing US trade uncertainty alongside signs that underlying inflationary pressures persisted despite an expected contraction in Q2 activity following earlier export surges.

After discussion: “Based on these factors, Governing Council decided to maintain the policy interest rate at 2.75%.”

Looking ahead, members reiterated that if economic weakness puts downward pressure on inflation without upward pressure from trade disruptions materializing further rate reductions may be considered: “Members were aligned on the importance of reiterating this view in their communications at this decision.”

They concluded it is still too early to assess fully how changes from global tariff regimes will affect Canada’s economic activity or inflation outlook.