The Bank of Canada is expected to leave its key policy rate unchanged at 2.25% at its Wednesday announcement, as robust economic growth and elevated inflation counterbalance rising trade tensions. All 35 economists surveyed by Reuters anticipate no change, while money markets assign a roughly 94% probability to the decision.
Canada’s economy expanded at a 3.3% annualized pace in the second quarter, outpacing the central bank’s 2.5% forecast. The rebound followed unplanned shutdowns at several auto plants, higher oil prices, and government stimulus, alongside the economic boost from co-hosting the soccer World Cup. Headline inflation accelerated to 3% in July, the upper bound of the BoC’s 1%–3% control range, while core inflation remained near the 2% target.
Trade risks are intensifying. U.S. President Donald Trump’s administration implemented a 50% tariff on approximately $20 billion of Canadian goods last month, prompting Ottawa to announce retaliatory measures set to take effect next week. Randall Bartlett, deputy chief economist at Desjardins Group, noted that risks are "broadening" and "evolving," though he described them as "broadly balanced" around inflation. He cautioned against pre-emptive rate adjustments until the duration and economic impact of tariff changes are clearer.
The unemployment rate fell to a two-year low of 6.4% in July, but Bartlett warned that weaker exports, reduced business investment, and hiring slowdowns could raise unemployment and exert downward pressure on prices. The BoC’s decision will be announced at 9:45 a.m. ET on Wednesday.
