The Bank of Canada’s Governing Council has released a summary of its deliberations leading up to the monetary policy decision on July 30, 2025. The meetings, which began on July 22 and were presided over by Governor Tiff Macklem, included Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, Rhys Mendes, and Michelle Alexopoulos.
The council began by discussing global economic developments. Ongoing tariffs and trade negotiations between the United States and other countries remained a key focus. New trade agreements with Japan and the European Union were noted as reducing the risk of an escalating global trade war. However, uncertainty remains high as "the United States is no longer willing to engage in free and open trade." Members considered how this shift could affect future economic growth as companies adjust to new trading relationships.
According to council members, the global economy has shown more resilience than expected despite trade turmoil. In the United States, domestic demand was supported by a strong labor market, investment in artificial intelligence, and equity market recovery. However, US growth moderated due to slower household spending amid ongoing uncertainty about trade policy. China’s growth also slowed but was offset by higher exports to other countries; meanwhile, euro area growth moderated due to weaker domestic demand.
Financial conditions have improved since April's turmoil. Equity prices have returned to early-year levels as markets assess that tariff impacts may be less severe than anticipated. Government bond yields are up in many countries because of increased debt issuance and revised expectations for monetary policy easing. The Canadian dollar strengthened against the US dollar but weakened against other currencies.
Domestically, Canada’s economy appeared to contract in the second quarter after robust first-quarter growth driven by businesses rushing shipments ahead of tariffs. This led to a sharp drop in exports during Q2 while consumption and government spending increased but business and residential investment declined. The resulting weaker activity produced more excess supply in the economy.
Council members discussed how persistent uncertainty might affect investment and consumption going forward but agreed that “so far, the Canadian economy overall had shown some resilience.” Business and consumer confidence showed improvement in recent surveys but remained low.
Labor market conditions remain soft with job losses concentrated in sectors reliant on trade; however, employment continued growing elsewhere in the economy. June saw job growth pick up but unemployment stood at 6.9%, with youth unemployment notably higher since earlier this year.
Given high uncertainty around US trade policy—including potential tariffs’ duration—the Bank chose not to provide a conventional forecast for growth or inflation in its July Monetary Policy Report (MPR). Instead it presented three scenarios: one where current tariffs remain with recently announced agreements implemented (growth resumes Q3; inflation near 2%), one where tariffs de-escalate (growth rebounds; inflation below 2%), and one where they escalate further (recession; inflation rises toward 2½% next year).
Members agreed these scenarios cover a wide range of outcomes while acknowledging additional uncertainty regarding how households, businesses, and governments will adapt.
Discussions focused on inflation indicators: CPI inflation was 1.9% in June—pulled down by removal of the consumer carbon tax—but excluding indirect taxes it was 2.5%. Core measures ranged from 2.5%–3%. Inflationary pressures came largely from shelter services prices while non-energy goods prices rose due partly to temporary factors like past currency depreciation.
Business surveys indicated slightly diminished inflation expectations after previous increases; consumer expectations remained unchanged.
Council members observed that tariff impacts on consumer prices have been modest so far: “There were no signs that inflation expectations had become de-anchored.” Wage increases eased along with unit labor costs; appreciation of the Canadian dollar reduced import prices across all three tariff scenarios without suggesting a sharp rise in inflation.
However, some concern was raised that cost pressures from tariffs could persist or increase if businesses face higher costs finding new suppliers or markets—a process that could prove structurally inflationary for some time.
On monetary policy options given these risks: “US trade actions were a structural shock... Monetary policy works to control inflation by influencing demand,” though it is less effective when price rises stem from supply shocks such as these tariffs represent.
Some members argued enough support had already been provided through previous rate cuts given evidence of resilience outside heavily affected sectors: “Given lagged effects... there was a risk that further easing might take effect only as demand was recovering.” Others believed further support might be needed if slack persists or labor market weakens further: “If incoming data showed... upside risks not materializing... there could be more room for monetary policy.”
Ultimately council decided it would need more clarity before drawing firm conclusions given uncertainties about slack estimates or adaptation responses across households/businesses/governments—and emphasized looking over shorter horizons than usual for their deliberations moving forward.
Settlement balances continued declining without sustained pressure on overnight rates; term repo operations are increasing as planned with balances expected between $50 billion–$70 billion.
After weighing two options—holding or reducing its policy interest rate—the council decided: “Based on these factors... Governing Council decided to maintain the policy interest rate at 2.75%.”
Members reiterated their view from prior meetings: should downward pressure intensify without corresponding upward price pressures from disruptions/tariffs being realized there may still be scope for rate reductions later this year.