The Bank of Canada is widely expected to hold interest rates at current levels at the conclusion of its policy meeting on Sept. 2.
Futures markets are putting the odds that Canada’s central bank holds interest rates steady for a seventh consecutive time at 99%.
The Bank of Canada’s trendsetting overnight interest rate has been at 2.25% for nearly a year now. Economists don’t see that changing at the bank’s September meeting.
Recent gross domestic product (GDP) data showed the Canadian economy grew at an annualized 3.3% in the year’s second quarter, its fastest pace in more than three years.
However, the Bank of Canada’s projections expect the pace of economic growth to slow in the year’s second half. Especially after the U.S. imposed new tariffs on Canadian goods.
On Aug. 22, the U.S. placed 50% tariffs on roughly 5% of Canadian exports to America and Canada plans to retaliate with its own counter-tariffs starting on Sept. 8.
Analysts say the Bank of Canada will likely want time to assess the impacts of the new tariffs on the domestic economy, as well as the impact of elevated crude oil prices.
Volatility in energy prices has led to erratic inflation in Canada this year. The annual inflation rate is currently at an annualized 3%, above the Bank of Canada’s 2% target.
Bank of Canada Governor Tiff Macklem has warned that if energy prices lead to inflation elsewhere in the economy, the central bank might be forced to raise interest rates.
At the same time, Macklem warned that any escalation of a trade fight between Canada and the U.S. might push the central bank to cut interest rates to stimulate the domestic economy.
For now, markets expect the Bank of Canada to adopt a wait-and-see approach.
Related Stories
