Bank of Canada prepares for rate decision amid tariff dispute with the US
The Bank of Canada is due to announce its decision on the key interest rate on September 2 amid an escalating trade dispute between Canada and the United States. The regulator must take into account the risks of slowing economic growth and accelerating inflation caused by new reciprocal tariffs, CNBC Top News reports.
The decision is scheduled to be announced at 9:45 a.m. US Eastern Time. In July, the Bank of Canada left its policy rate unchanged at 2.25% for the sixth consecutive time. It had previously reached 5%.
Tariffs and inflation
US President Donald Trump's trade war against Canada, the United States' second-largest trading partner, includes 50% tariffs on a broad range of Canadian goods. Canada announced retaliatory tariffs that are set to take effect on September 8 and will cover goods worth more than $20 billion.
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Canada's economy grew by 0.8% in the second quarter after growth of 0.1% in the first quarter. At the same time, annual consumer inflation accelerated to 3% in July from 2.8% in June.
Bank assessments
Bank of America economist Carlos Capistran expects the Canadian regulator to maintain cautious rhetoric, emphasizing high uncertainty and its readiness to adjust monetary policy if necessary. In his view, the escalation of the trade war with the United States will likely weigh on economic growth, while core inflation is at the 2% target level.
Traders are pricing in three Bank of Canada rate hikes over the next 12 months. However, Bank of America expects the regulator to keep the rate at its current level in the coming months. Goldman Sachs forecasts that Trump's tariffs will reduce Canada's GDP growth rate by 0.3 percentage points and add 0.3 percentage points to inflation. The bank believes that risks to growth and instability in trade relations may lead to the rate remaining unchanged in the near term.
