Bank of Canada deliberations: fuel prices and new US tariffs kept the rate at 2.25%

The Bank of Canada kept its policy rate at 2.25% on 2 September (report). On 16 September it published the summary of the Governing Council's deliberations, which sets out what members discussed before the decision.

The global picture

• United States: growth stayed strong, driven by consumer spending and investment linked to artificial intelligence, while inflation remained elevated.
• Energy: with shipments through the Strait of Hormuz curtailed by the war in the Middle East, refinery margins stayed unusually high and kept headline inflation up around the world.

Canada's economy

• Growth: the economy grew at a 3.3% annualized pace in the second quarter, slightly above expectations, with gains in consumer spending, exports and business investment (GDP report).
• Jobs: private sector hiring was solid, but unemployment around 6½% and subdued wage growth meant the labour market was still soft.
• Housing: activity rebounded after a long weak period, though condominium markets in Toronto and Vancouver stayed soft.
• Tariffs: new US tariffs cover roughly 5% of Canadian goods exports. Members said the added trade uncertainty could weigh on confidence and investment, and that government support could offset some of the impact.

Governing Council judged that the economy still had excess supply.

Inflation

• CPI inflation had been around 3% for several months, mainly because of higher gasoline prices.
• Excluding gasoline, inflation was 2.2% in July, and core measures were close to 2%.
• Members saw little sign so far of fuel costs spreading to other prices, but said the longer energy prices stay high, the bigger that risk becomes. They were concerned that damage to refinery capacity would keep gasoline and diesel expensive and leave headline inflation higher for longer than the July Monetary Policy Report expected.

Why they held, and what comes next

Members kept the rate at 2.25% because the economy and inflation were developing broadly as forecast in July, while inflation had been above the 2% target for several months. They said future decisions would be guided by the inflation outlook and its risks, weighing weaker growth from tariffs against energy prices, with the aim of maintaining "price stability through this period of upheaval".

Since the meeting

• August CPI inflation held at 3.0%, and inflation excluding gasoline rose to 2.4% (report).
• Canada lost 42,000 jobs in August (report).
• The US Federal Reserve raised its rates to 3.75%–4.00% on 16 September (report), widening the gap with Canada's 2.25%.

Oil prices are the other big driver of the Canadian dollar (oil and the Canadian dollar). Live prices: USD/CAD.