The decision comes ahead of US President Donald Trump's August 1 tariff deadline

The Bank of Canada (BoC) has opted to maintain its policy interest rate at 2.75 per cent, signaling a cautious stance amid escalating trade tensions and mixed economic signals.
“While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable,” said the Bank in a release. “With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade.”
The decision comes ahead of US President Donald Trump’s August 1 tariff deadline and as global trade remains unsettled due to unpredictable US policy actions, while the broader global economy has demonstrated resilience. The US economy has slowed but remains supported by a strong labour market. Inflation in the US edged up in June, with early signs that tariff costs are filtering through to consumers.
Meanwhile, Europe saw modest growth in the first half of the year, and China's export volumes have adjusted as trade with the US declines and shipments to other markets expand. Global oil prices have held relatively stable, equity markets have climbed, and Canadian dollar strength has reflected broad US dollar weakness.
One notable factor the Bank highlighted was the July Monetary Policy Report (MPR) as it doesn’t present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, it presents a “current tariff scenario” based on tariffs in place or agreed as of July 27 along with two alternative scenarios: one with an escalation and another with a de-escalation of tariffs.
In its baseline scenario, overall inflation is expected to hover near the 2 per cent target, with competing forces, tariff-driven cost increases and economic slack, largely balancing each other out. However, they emphasized that future risks remain.
“As the alternative scenarios illustrate, lower tariffs would reduce the direct upward pressure on inflation and higher tariffs would increase it. Additionally, many businesses are reporting costs related to sourcing new suppliers and developing new markets. These costs could add upward pressure to consumer prices,” they said in a statement.
Looking ahead, the BoC’s current tariff scenario projects GDP growth rebounding to roughly 1 per cent in the latter half of 2025, with slack persisting into 2026 before recovering toward 2 per cent growth in 2027. However, in a high-tariff scenario, the economy could continue contracting through year-end, while tariff relief could trigger a faster recovery.
Policymakers are closely watching several factors, including how extensively higher US tariffs impact Canadian export demand, the ripple effects on business investment and employment, and how inflation expectations evolve in a volatile global landscape.
“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” said the release.