Bank of Canada keeps its policy rate at 2.25 per cent, says tariffs could add to inflation

Ottawa | Reuters — The Bank of Canada kept its key policy rate on hold at 2.25 per cent on Wednesday, as widely expected, but said the risks to inflation had grown while new U.S. tariffs made growth prospects more uncertain.

Canada’s economy, which rebounded at an annualized rate of 3.3 per cent in the second quarter, faces dual risks from the worsening trade dispute with the United States. U.S. tariffs threaten to weaken growth, while Canada’s dollar-for-dollar retaliation could put upward pressure on domestic prices.

“Economic growth … puts us on a stronger footing as we face new challenges. But uncertainty about the sustainability of the rebound has increased with new U.S. trade actions,” Governor Tiff Macklem said in prepared remarks.

WHY IT MATTERS: Canada’s headline inflation rose above the Bank of Canada’s cap of three per cent in july, but core measures have hovered around two per cent — considered acceptable. However, continued high fuel prices could feed into broader inflation.