The Bank of Canada opted for the status quo on Wednesday, deciding to maintain its key rate at 2.75% for the third consecutive time.
The Bank of Canada (BDC) explained that it has maintained its key rate because it believes that “new sectoral customs duties threats persist and American commercial measures remain unpredictable”.
“Although certain elements of the United States’s trade policy has started to materialize in recent weeks, negotiations are constantly evolving,” read a statement.
BDC has indicated that in Canada, American customs duties “disrupt trade”, but that overall, “the economy shows a certain resilience so far”.
“The growth in business and household expenditure is hampered by uncertainty. There has been a weakening of the labor market conditions in the sectors affected by foreign trade, but employment was maintained in the rest of the economy. ”
Several possible scenarios
BDC says it has based on several possible scenarios to decide to leave its rate unchanged.
In the first, customs duties are maintained and “excess capacities persist within the economy in 2026, then decrease as growth increased to establish almost 2 % in 2027”. In this scenario, inflation remains almost 2%.
In the Décuscalade scenarioeconomic growth “bounces faster”, while in the climbing scenariothe economy “contracts until the end of this year”. Lower customs duties would alleviate direct rise in inflation and higher customs duties would intensify these pressures.
Possible drop in the rate
The BDC management board said it “[procédait] with caution ”and remained attentive to the uncertainties faced by the economy of the country. “If the weakening of the economy weighs additional drop pressure on inflation and upward pressures on prices due to commercial disturbances are contained, a reduction in the key rate may be necessary.”
The next update of the key rate will take place on September 17.
