The Bank of Canada has decided to maintain its benchmark interest rate at 2.25 per cent, citing signs of economic improvement while acknowledging ongoing risks posed by trade uncertainty and geopolitical tensions. The decision, announced on Wednesday, was widely expected by economists, with all 36 surveyed by Reuters anticipating no change in the policy rate. The central bank’s latest Monetary Policy Report indicates that the Canadian economy is showing signs of a rebound after a period of flatlined growth, but the path forward remains clouded by external factors. The bank’s cautious approach reflects its assessment that while inflation is easing, the risks of renewed price pressures cannot be ignored.
The Canadian economy has faced significant headwinds over the past year, including the impact of tariffs imposed by the United States that have squeezed key sectors such as automotive manufacturing. The country entered a technical recession earlier this year after reporting two consecutive quarters of economic contraction. However, the Bank of Canada’s report points to a rebound in the second quarter between April and June, driven by a pickup in exports and residential investment. As a result, the central bank estimates that the economy will grow just above one per cent in the first half of 2026, a modest but encouraging sign after a difficult period.
Bank of Canada Governor Tiff Macklem highlighted the resilience of Canadian consumers and the adaptability of businesses in the face of ongoing uncertainty. “Canada’s economy is showing signs of improvement,” the bank stated, while acknowledging that “uncertainty driven by U.S. tariffs and the war in the Middle East could knock potential growth off course”. Macklem noted that businesses are reconfiguring their supply chains and finding new ways to work with clients, while the strong American economy and low Canadian dollar are contributing to increased orders for Canadian exports. These factors have helped offset some of the negative effects of trade restrictions.
