Bank of Canada holds policy rate steady at 2.25%

The Bank of Canada left interest rates unchanged, releasing the full statement below. The press conference with Governor Tiff Macklem is scheduled for 10:30 AM ET.

The central bank maintained its overnight rate target at 2.25%, keeping the bank rate at 2.5% and the deposit rate at 2.20%.

Ongoing conflict in the Middle East continues to push up energy prices. Additionally, fresh US tariffs and retaliatory Canadian measures were announced after trade negotiations between Canada and the US collapsed. Both scenarios are still evolving.

US economic growth remains robust, supported by consumer spending and investment in artificial intelligence. The euro area's second-quarter growth exceeded expectations, whereas China's economy decelerated. Despite geopolitical challenges, the global economy has proven resilient, with expansion broadly aligning with the July Monetary Policy Report projection. Inflation stays elevated in most nations due to persistent high oil prices and strong margins for refined energy products.

Financial markets have become tighter since July, with long-term bond yields rising worldwide, including in Canada. The Canadian dollar edged higher as the US dollar weakened.

As anticipated, Canada's economy expanded in the second quarter, with GDP rising 3.3% after a sluggish first quarter. Although some of the strength came from temporary factors, the recovery was widespread. Consumer spending posted solid growth, and housing activity rebounded after several weak quarters. Exports and business investment surged. Labour market conditions improved, with the unemployment rate falling to 6.4% in July. However, labour demand remains soft, and indicators suggest persistent excess supply.

Recent figures reinforce the Governing Council's assessment that Canada's recovery is broadening. Yet uncertainty remains elevated, and the new US tariffs and threats of additional measures jeopardize the recovery's durability.

Consumer price inflation has lingered around 3% in recent months, driven mainly by sustained high gasoline prices. So far, higher energy costs have not spilled over into other categories; excluding gasoline, inflation stood at 2.2% and core inflation measures were near 2% in July. But with the Middle East conflict unresolved and little progress on reopening the Strait of Hormuz, the upside risks to the Bank's inflation outlook have grown. The longer high oil prices and refinery margins persist, the greater the chance that price increases spread to other goods and services. Additionally, the new US and Canadian tariffs will raise input costs for some businesses and could eventually affect consumer prices.

Because the economy and inflation are developing largely in line with the July MPR projections, the Governing Council decided to keep the policy rate unchanged. However, inflation risks have risen, and the new tariffs have increased uncertainty around growth. The council will evaluate the durability of the recovery and the inflation outlook, standing ready to adjust policy if necessary. The Bank said it remains dedicated to preserving Canadians' trust in price stability amid global turmoil.