At its September meeting, the Bank of Canada (BoC) held its benchmark overnight interest rate steady. Inflation remains elevated and above target. However, inflationary pressures still appear to be largely contained to energy prices, and have not spilled over to other products, as evidenced by core inflation near the BoC’s 2% target. But the BoC did acknowledge that global developments have raised the upside risks to inflation. Here’s more from yesterday’s interest rate decision.

• The BoC held its policy interest rate steady at 2.25% yesterday. This marks a seventh consecutive rate hold as the BoC closely monitors how geopolitical and trade tensions impact Canada’s economy and inflation.
• Inflation risks are tilting higher. Canada’s annual inflation rate has hovered near 3% in recent months, mainly due to persistently higher gasoline prices, as the ongoing conflict in the Middle East keeps energy costs elevated.
• Trade tensions add another layer of uncertainty. New US tariffs and Canada’s countermeasures, following the breakdown of trade talks between the two countries, are clouding the economic growth outlook. The BoC noted the situation remains fluid, and it is closely monitoring the impact on Canada’s economic activity.
• The BoC is watching but not committing to any future policy decisions. BoC officials said they will assess the sustainability of the recent economic rebound and the outlook for inflation and are prepared to adjust monetary policy as needed.

Yesterday’s interest rate hold reflects a balancing act for the BoC: economic growth has surprised to the upside, but so have the risks to inflation, and a still-unsettled trade relationship with the US makes the path forward harder to call. The next scheduled rate announcement is October 28, and while most economists expect the BoC to stay on hold for now, both the Middle East conflict and the Canada-US trade dispute remain fast-moving enough to shift that outlook quickly.

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