The Bank of Canada kept its target for the overnight rate at 2.25% on September 2, marking a seventh consecutive hold, as policymakers pointed to a widening tariff dispute with Washington and elevated energy prices as reasons for caution. The Bank Rate stands at 2.5% and the deposit rate at 2.20%.
In its accompanying statement, the central bank said upside risks to inflation had increased while new tariffs were making the growth outlook more uncertain. Officials pointed to two sources of pressure: continuing conflict in the Middle East, which has kept energy prices elevated, and the collapse of trade talks between Ottawa and Washington, which triggered a fresh round of tariffs and counter-tariffs. The Bank described both situations as fluid. Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers presented the decision at a press conference, with the next rate announcement, alongside an updated Monetary Policy Report, scheduled for October 28.
The trade backdrop cited in that statement has continued to escalate since the decision. Washington's duties on a wide range of Canadian goods run as high as 50%, covering roughly $28 billion in exports, and Ottawa's retaliatory measures, worth about $27.6 billion, took effect on September 8, doubling tariffs on US steel and aluminum imports to 50%. The back-and-forth is the same dynamic the Bank flagged as a source of upside inflation risk rather than a reason to ease policy further.
Two days after the rate hold, Statistics Canada reported that the economy shed 42,000 jobs in August, a sharp miss against forecasts for a 15,000 gain, while the unemployment rate held at 6.4%. Public-sector employment fell by 20,000, a third consecutive monthly decline, even as manufacturing added 22,000 positions. Wage growth slowed to roughly 2% year over year, its weakest pace in years outside the pandemic period.
The combination leaves the Bank of Canada balancing a softening labour market against an inflation profile it now views as tilted to the upside because of tariffs and energy costs. That tension helps explain why the Bank has held rates steady through seven straight decisions rather than moving in either direction: weaker hiring and slower wage growth would typically argue for lower borrowing costs, but officials have repeatedly cited tariff-driven cost pressures and geopolitical risk to energy markets as reasons the inflation path remains uncertain.
Attention now turns to whether the trade dispute between the two countries stabilizes or intensifies further before the Bank's next scheduled decision on October 28. Additional tariff escalation or a renewed run-up in energy prices would reinforce the upside inflation risks the Bank already flagged, while a de-escalation or a further deterioration in hiring data could shift the balance of the debate ahead of that meeting.