Bank of Canada Governor Tiff Macklem has highlighted the growing risk of inflation, pinpointing increased energy costs and incoming tariffs on U.S. goods as potential drivers of rising prices for consumers and businesses in Canada. Macklem’s comments came following the central bank’s decision to maintain its benchmark interest rate at 2.25 per cent, consistent with economists’ expectations. This marks the seventh consecutive time the bank has kept its policy rate unchanged since lowering it in October last year.
Macklem emphasized that the recent surge in oil prices due to escalating tensions in the Middle East poses a significant risk to inflation. The Bank of Canada acknowledged recent data indicating a broadening economic recovery but also warned of the potential impact of the ongoing conflict in the Middle East and U.S. tariffs on inflation.
Meanwhile, the trade dispute between Canada and the U.S. has intensified, with both countries imposing tariffs on each other’s goods. The Canadian government has rolled out a $7.5 billion economic relief program to support affected workers and businesses, adding to the previous tariff support measures totaling nearly $25 billion over the past 18 months.
Canada’s inflation rate rose to three per cent in July, primarily driven by increased gasoline and oil prices influenced by the situation in Iran. Macklem expressed concern over the high inflation rate, underscoring the bank’s target of achieving two per cent inflation. Analysts anticipate potential rate hikes starting in the fourth quarter of 2026 based on the Bank of Canada’s upcoming economic forecasts in October.
Amid uncertainties surrounding trade relations and global bond market movements, the Bank of Canada’s decision to hold interest rates steady was deemed unsurprising. The bank’s cautious approach reflects the prevailing economic uncertainties, with experts highlighting the potential impact of trade tensions and oil market fluctuations on future monetary policy decisions. The next Bank of Canada rate announcement is scheduled for October 28.