The Bank of Canada leaves its policy rate at 2.25 per cent for a seventh consecutive decision
The Bank of Canada left its target for the overnight rate at 2.25 per cent on Wednesday, with the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent. It was a seventh consecutive hold since last October's cut. The Governing Council said the economy is tracking its July report while new US tariffs and the war in the Middle East have raised upside risks to inflation. Governor Tiff Macklem called inflation near 3 per cent too high.
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The rate stays at 2.25 per cent with the next announcement on 28 October
The Bank of Canada announced on Wednesday that it was holding its target for the overnight rate at 2.25 per cent, with the Bank Rate at 2.5 per cent and the deposit rate at 2.20 per cent. CBC News reported that this is the seventh consecutive time the bank has left the rate unchanged since it lowered the policy rate to its current level in October of last year. Economists had expected as much: in a Reuters poll taken on 22 August, all 35 participants said the rate would stay in place. The Governing Council said the economy and inflation are evolving broadly as forecast in the July Monetary Policy Report, while upside risks to inflation have increased. Second-quarter gross domestic product rose 3.3 per cent, with the pick-up spread across consumption, housing, exports and business investment. The bank's next rate announcement is scheduled for 28 October.[1], [2]
Inflation runs near 3 per cent and Macklem calls that too high
Consumer price inflation is running near 3 per cent on high gasoline prices; excluding gasoline it was 2.2 per cent in July, and measures of core inflation stayed close to 2 per cent. Tiff Macklem called that level too high, CBC News reported, recalled that the bank aims at 2 per cent inflation, and said the increase is concentrated in gasoline and oil prices. The bigger issue, Macklem said, is the war in the Middle East: the conflict has re-escalated, oil prices are back up, and the longer it drags on the greater the risk that it spills over to the prices of other goods and services. The bank wrote in its own statement that the continuing conflict in the Middle East is keeping energy prices high. US benchmark oil prices have risen about 13 per cent since the bank's July announcement.[1], [2]
Tariffs harden while bond yields climb
Trade tension between Canada and the United States has hardened since the July meeting. CBC News reported that US President Donald Trump imposed 50 per cent tariffs last month on about 28 billion dollars of Canadian products, and that from Tuesday Canada is matching those levies dollar for dollar on 27.6 billion dollars of comparable US goods. The federal government last week rolled out a 7.5 billion dollar expanded relief programme for affected workers and businesses, on top of nearly 25 billion dollars of tariff support implemented over the past 18 months. In its statement the bank wrote that the new US tariffs and the Canadian counter-tariffs will raise costs for some businesses and could feed into consumer prices over time. The benchmark 10-year Government of Canada bond yield rose to 3.80 per cent on Wednesday, its highest in more than two years. Macklem said some of the move in global bond yields is spilling over into Canada, while Senior Deputy Governor Carolyn Rogers said it is important to distinguish volatility from dysfunction, that the worry is leveraged investors unwinding positions quickly, and that they do not see that happening right now.[1], [2]
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