Home / Business and Economy / Bank of Canada Holds Rates Amid Trade Tensions
Bank of Canada Holds Rates Amid Trade Tensions
28 Aug
Summary
- Overnight rate remains at 2.25% with no change expected for a year.
- Trade talks suspension with the U.S. has not altered economists' outlook.
- Inflation is at the high end of the target range, but demand remains weak.
The Bank of Canada is anticipated to keep its overnight interest rate at 2.25% this week, with economists predicting no change for at least the next year. This forecast has remained consistent, even following the recent breakdown of trade negotiations with the United States. Policymakers have maintained current rates since October, observing inflationary pressures and economic activity.
Inflation was recorded at the upper limit of the Bank's 1-3% target range in July. However, stable core inflation suggests that overall demand is not robust. This, combined with an expected economic recovery, grants the central bank the flexibility to delay rate hikes. The survey indicates that rates will stay at 2.25% through the remainder of 2026 and into the third quarter of 2027.
Economists foresee the overnight rate increasing to 2.50% in the fourth quarter of 2027, a projection unchanged from previous expectations. While some economists voiced concerns about potential inflation from a weakening Canadian dollar due to trade tensions, the primary anticipated impact of an escalating trade war is a drag on Canada's GDP growth rather than increased inflation.
