Key Points
- The Bank of Canada held its key interest rate steady at 2.75%.
- The main reason for the hold is the high level of uncertainty surrounding the U.S. trade war.
- The bank hinted at a possible rate cut in the future if the economy weakens and inflation stays low.
- It skipped its detailed economic forecast, offering three scenarios based on tariffs instead.
The Bank of Canada held its key interest rate at 2.75% for the third time in a row on Wednesday, citing ongoing uncertainty over the U.S. trade war. The central bank said that while the risk of a severe global trade conflict has diminished, it’s still too unpredictable to provide detailed forecasts for the Canadian economy.
Despite the hold, the bank hinted that it could cut rates in the future if the economy weakens further, as long as inflation remains under control. For now, Canada’s economy is showing “some resilience,” with strong job growth and inflation near the 2% target.
However, the situation could change quickly with an August 1 deadline for a new U.S.-Canada trade deal looming, a date when President Donald Trump has threatened to impose 35% tariffs on some Canadian goods.
Instead of its usual detailed forecast, the bank presented three different scenarios based on whether U.S. tariffs on Canadian goods are maintained, increased, or decreased. Governor Tiff Macklem said they will be watching developments closely.
Following the announcement, the Canadian dollar weakened against the U.S. dollar. Financial markets are not expecting an interest rate cut anytime soon, with most betting on another hold in September.
