BoC holds rates as expected as 2.25%; says upside risks to inflation have increased but new tariffs make growth prospects more uncertain

Statement Upside risks to inflation have increased, while new tariffs make growth prospects more uncertain. Governing Council will assess the sustainability of the economic rebound and the outlook for inflation, and is prepared to adjust monetary policy as needed. Both Middle East Conflict and US/Canadian trade situations remain fluid. Financial conditions have tightened since July. Overall, recent data reaffirm Governing Council’s view of a broadening recovery in Canada’s economy. However, uncertainty is high and new US tariffs and threats of further action pose risks to the sustainability of the recovery. Inflation There has been little evidence of higher energy prices spreading to other components of inflation. Upside risks to the Bank’s inflation forecast have increased. New US tariffs and Canadian counter-tariffs will also raise costs for some businesses and could feed into consumer prices over time. Economy Canadian economic activity strengthened in the second quarter, some of the recent strength reflected temporary factors, the pick-up in activity was broad-based. Consumption showed solid gains Labour market conditions have improved in recent month Demand for labour remains subdued and indicators point to continued excess supply in the economy. Following several weak quarters, there was some rebound in housing activity. Exports and business investment were up sharply.