The Bank of Canada keeps interest rates unchanged at 2.25%, citing that new tariffs and tensions in the Middle East have increased inflationary risks.

⑴ The Bank of Canada announced on Wednesday that it will maintain its overnight rate target at 2.25%, the bank rate at 2.5%, and the deposit rate at 2.20%. ⑵ The central bank's statement noted that ongoing conflict in the Middle East is keeping energy prices elevated, while, following the breakdown of Canada-US trade talks, the United States has unveiled new tariffs and Canada has introduced countermeasures. Both situations are still developing. ⑶ Overall, global economic growth is broadly in line with the projections of the July Monetary Policy Report. The US economy continues to grow robustly, driven by consumer spending and AI-related investment. Growth in the eurozone was stronger than expected in the second quarter, while China's economy has slowed. ⑷ Since July, financial conditions have tightened, global long-term bond yields have risen, and Canada is no exception. The Canadian dollar has appreciated slightly against the US dollar due to the weakening of the latter. ⑸ Canada's economic performance improved in the second quarter, with GDP growing by 3.3%, reversing the weakness of the first quarter. Consumption registered solid growth, housing activity rebounded after several quarters of sluggishness, and exports and business investment saw substantial increases. ⑹ The job market has improved in recent months, with the unemployment rate edging down to 6.4% in July, but labour demand remains sluggish, and various indicators suggest there is still excess supply in the economy. ⑺ On inflation, the CPI has hovered around 3% in recent months, mainly due to persistently high gasoline prices. However, excluding gasoline, inflation stands at 2.2%, and core inflation indicators remained close to 2% in July. ⑻ The central bank believes that limited progress in the Middle East conflict and the reopening of the Strait of Hormuz mean that high oil prices and rising refining margins present upside risks to inflation forecasts; the longer these persist, the greater the risk of price pressures spreading to other goods and services. ⑼ New US tariffs and Canada's retaliatory tariffs will raise costs for some businesses and may eventually pass through to consumer prices over time. ⑽ Given that economic and inflation developments are generally consistent with the July forecast, the Governing Council has decided to leave rates unchanged. However, upside inflation risks have increased, and the new tariffs have made the growth outlook more uncertain. The Bank will assess the sustainability of the economic recovery and the inflation outlook, and is prepared to adjust monetary policy if necessary.