Bank of Canada holds interest rates as Canada-US trade war escalates

The Bank of Canada has kept its key interest rate unchanged at 2.25 percent as policymakers weigh rising inflation against the economic impact of an escalating Canada-US trade war.

Their decision on Wednesday marks the seventh consecutive time the central bank has held rates, down from a recent peak of five percent.

The decision comes after US President Donald Trump imposed 50 percent tariffs on a range of Canadian goods.

Canada has announced retaliatory tariffs covering more than $20 billion in goods, which are due to take effect on September 8.

Canada's economy grew 0.8 percnet in the second quarter, up from 0.1percent during the first three months of the year. Meanwhile, annual inflation increased to three percent in July from 2.8 percent in June.

“The BoC is in a wait-and-see mode, but that doesn’t mean it’s standing still”, Michael Constantino, CEO of WeBull Canada, said in a note following the decision.

He described the rate hold as “a deliberate pause for information.”

Bank of America economist Carlos Capistran said escalating trade tensions were likely to weigh on economic growth.

“Trade uncertainty has risen as the trade war with the US has just escalated, which will likely weigh on growth, and core inflation is at the 2% target,” Capistran wrote.

Goldman Sachs estimates Trump's tariffs could reduce Canadian GDP growth by 0.3 percentage points while adding 0.3 percentage points to inflation.