The Bank of Canada left its benchmark interest rate unchanged at 2.25% on September 2, marking a seventh consecutive hold and keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. The decision matched market expectations, with the Governing Council judging that the economy and inflation had tracked broadly in line with the projections set out in July's Monetary Policy Report.
Even so, policymakers signaled growing unease about where inflation heads next. The central bank pointed to two converging pressures: persistently high energy costs tied to the ongoing conflict in the Middle East, and a fresh round of trade friction after talks between Ottawa and Washington broke down, prompting new US tariffs and Canadian counter-measures. Officials said both forces raise the risk that price growth drifts further above the 2% target rather than settling closer to it, and that new tariffs and counter-tariffs could feed into consumer prices over time.
The trade dispute complicates the growth picture as much as the inflation one. The Bank acknowledged that while the domestic economy has held up better than many feared earlier in the year, the escalating tariff fight has made the near-term outlook for output and hiring considerably less certain, leaving the Governing Council reluctant to commit to a fixed rate path beyond the next few months.
The hold came just two days before Statistics Canada reported a sharp deterioration in the labour market. Employment fell by 41,700 positions in August, badly missing forecasts for a 15,000 gain and reversing much of the spring's hiring momentum. Full-time employment alone dropped by 35,900, part-time work also declined, and the unemployment rate held at 6.4%. Wage growth cooled to its slowest pace in years, adding to signs that tariff-exposed export industries are already feeling the strain the Bank had flagged in its statement two days earlier.
Together, the two releases leave the Bank of Canada navigating a delicate balance: inflation risks tilted higher by tariffs and energy prices on one side, and a softening jobs market on the other. That combination has kept the policy rate anchored rather than pushed it toward either a hike or a cut, with the Governing Council opting to wait for more evidence before adjusting course.
The Canadian dollar softened against its US counterpart in the days following the employment report, as traders weighed the steady rate decision against the weaker hiring data. The Bank's next scheduled announcement falls on October 28, alongside an updated Monetary Policy Report, when policymakers will have a fuller picture of how the tariff dispute and energy costs are feeding through to consumer prices.
For now, the message from Ottawa is one of watchful patience: rates unchanged, risks skewed toward higher inflation, and a labour market showing its first real cracks of the year — a combination officials say warrants closer monitoring rather than an immediate policy response.