The Bank of Canada announced on July 30, 2025, that it will maintain its target for the overnight rate at 2.75%. The Bank Rate remains at 3% and the deposit rate at 2.70%.
Recent developments in US trade policy have added uncertainty to global economic forecasts. The Bank’s July Monetary Policy Report does not provide conventional base case projections for GDP growth and inflation due to ongoing unpredictability in trade negotiations and threats of new tariffs. Instead, the report outlines a scenario based on tariffs currently in place or agreed upon as of July 27, along with two alternative scenarios: one involving an escalation and another a de-escalation of tariffs.
Despite volatility caused by US tariffs, the global economy has shown some resilience. In the United States, economic growth slowed during the first half of 2025 but the labor market remained stable. US consumer price index (CPI) inflation increased in June, with some evidence that tariffs are being passed on to consumers. The euro area experienced modest growth, while China offset declines in exports to the US by increasing exports elsewhere. Global oil prices have remained near April levels despite fluctuations, equity markets have risen, corporate credit spreads have narrowed, and long-term government bond yields have increased. The Canadian dollar has appreciated against a generally weaker US dollar.
According to the current tariff scenario outlined by the Bank of Canada, global economic growth is expected to slow modestly to about 2.5% by late 2025 before returning to around 3% over 2026 and 2027.
In Canada, US tariffs are disrupting trade but overall economic conditions remain relatively resilient so far. After strong GDP growth in early 2025 driven by efforts to export ahead of new tariffs, GDP likely fell by about 1.5% in the second quarter due largely to a reversal in exports and lower demand from the US for Canadian goods. Uncertainty is limiting business and household spending growth. Labor market conditions have weakened in sectors affected by trade disruptions; however, employment levels have been maintained elsewhere in the economy. The unemployment rate rose gradually since January to reach 6.9% in June while wage growth continued to slow down.
A range of indicators suggests excess supply within Canada’s economy has increased since January.
The Bank projects that after this contraction in Q2, GDP growth will pick up to about 1% during the second half of this year as exports stabilize and household spending rises gradually. Economic slack is expected through much of 2026 before diminishing as growth approaches nearly 2% in 2027 under current tariff assumptions. Faster recovery would occur if tariffs were reduced; conversely, further escalation could lead to continued contraction through year-end.
Canada’s CPI inflation was measured at 1.9% in June—slightly higher than May—with core inflation (excluding taxes) rising to 2.5%. This increase reflects higher prices for non-energy goods while shelter price inflation remains high but continues easing.
The Bank expects total inflation will stay close to its target near 2%, balancing upward pressures from costs related to sourcing new suppliers and developing markets against downward pressures from slower economic activity. However, risks remain: lower tariffs could reduce inflationary pressure while higher tariffs could increase it further.
“Governing Council decided to hold the policy interest rate unchanged,” according to today’s statement from policymakers at the Bank. “We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade.”
“If a weakening economy puts further downward pressure on inflation and the upward price pressures from trade disruptions are contained, there may be a need for a reduction in the policy interest rate,” Governing Council stated.
“Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy,” they added.
“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” Governing Council said further. “We will support economic growth while ensuring inflation remains well controlled.”
The next scheduled announcement regarding changes or updates to monetary policy rates is set for September 17, 2025.