Bank of Canada holds interest rate at 2.75% as economy shows resilience in the face of tariffs

The Bank of Canada held its interest rate at 2.75 per cent on Wednesday, citing resilience in the economy despite the ongoing global trade war brought on by the U.S.

Governor Tiff Macklem said in prepared remarks that the governing council's decision came from a "clear consensus."

With a backdrop of considerable trade uncertainty, Canada's economy has yet to deteriorate sharply in the face of U.S. tariffs and underlying inflation is showing some stubbornness.

This comes after the bank chose to hold rates in April and June, citing global tariff uncertainty.

The decision was in line with what economists were predicting leading up to the announcement.

Bank of Canada governor Tiff Macklem said that deals made between the U.S. and other world powers in recent weeks have reduced the risk of a "severe and escalating" global trade war, and the impact so far has been less severe than originally feared.

While U.S. President Donald Trump has recently struck trade deals with the likes of Japan and the European Union, those agreements still come with some level of tariffs.

Macklem said the nature of those deals suggest "the United States is not returning to open trade."

But, with certain sectors being hit hard by tariffs, Macklem said challenges remain.

Macklem said the Bank of Canada will be watching how much tariffs affect business activity and demand for Canadian exports and whether higher costs from those import duties are passed on to customers.

The Bank of Canada lowers its policy rate when it wants to stimulate the economy but keeps borrowing costs elevated when it's worried inflation will rise.

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The central bank published a monetary policy report alongside its rate decision Wednesday, but that report once again did not include a single, central forecast for the economy as the central bank's outlook remains clouded by uncertainty.

Instead, the bank offered a scenario based on the current tariff level persisting and two others that outline both a de-escalation and a further ramp up of tariffs. Each of those case studies sees at least some level of tariffs persisting.

While it's tricky to get a firm number on what tariff levels look like given a variety of exemptions and overlapping duties, the central bank sees the effective U.S. tariff rate on Canada at roughly seven or eight per cent today, up five percentage points from the start of the year.

The bank's monetary policymakers also assume a vast majority of Canadian goods will be exempt from tariffs over the coming years thanks to their compliance with the Canada-U.S.-Mexico Agreement as companies rush to get certified.

In the status quo scenario, the Bank of Canada sees the economy rebounding through the rest of this year after an estimated decline of 1.5 per cent in annualized real gross domestic product last quarter.