The Bank of Canada has just announced that they will hold its key policy rate at 2.75, making this the third straight meeting without change. While headline inflation rose to 1.9 per cent back in June, core inflation remains stubbornly elevated, putting pressures on decision-makers. Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers framed the decision as data-driven and flexible, stressing uncertainty tied to unresolved trade tensions with the U.S. Coming just as Canada and the U.S face an August 1st deadline and failure to strike a new economic agreement may trigger fresh tariffs. If Canada and the U.S fail to reach an agreement, Canada could be looking at new tariffs up to 35% on material goods like steel, aluminum and autos. Though, there has been talk about whether Carney will propose a similar negotiating point with the U.S, that the EU and Japan have accomplished. Both Japan and the EU have negotiated to bring Tariffs down to 15%, leaving room for Canada to challenge U.S on their decision.
While much of this is still unfolding behind closed doors, the risk of escalating tariffs is casting a long shadow over Canada’s economic outlook. Especially for industries like auto manufacturing, agri-food and metal productions throughout the country, but more specifically Ontario and Quebec. At the same time, the Bank of Canada’s hold on things signals a desire to avoid overcorrecting. Since the Bank of Canada is opting for stability over sharp moves, this means interest rates will likely stay where they are for a few more months.
What does this mean for the average household or business?
If you’re renewing a mortgage, carrying credit card debt, or applying for a business loan, your interest rate likely won’t change right away. Which offers a bit of breathing room, however a rate cut may still come later this year, but only if inflation continues to ease and external shocks like tariffs font push prices higher. This trade uncertainty and interest rate stagnation can slow investments down along with delay major projects as the trade uncertainty adds external risk while the interest rate stagnation reflects caution.
If Canada can secure a tariff deal like the EU and Japan within the next few days then it could offer some mid-year stability. If not, the pressure on the Bank of Canada to delay rate cuts or even consider restricting them could grow. With there being geopolitical pressures and trade related risks, it’s a moment where we should expect a ‘wait and see’ approach.