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Bank of Canada holds rates steady and says global trade war risk has eased
Bank of Canada holds rates steady and says global trade war risk has eased

Reuters

timea day ago

  • Business
  • Reuters

Bank of Canada holds rates steady and says global trade war risk has eased

OTTAWA, July 30 (Reuters) - The Bank of Canada held its key policy rate at 2.75% for the third time in a row on Wednesday, as expected, and said the risk of a severe and escalating global trade war had diminished. But for the second consecutive quarter, the central bank declined to give detailed forecasts for the Canadian economy, citing the uncertainty around U.S. trade policy. The bank also said that if the economy weakened further it could cut rates, provided upward pressures on inflation were kept in check. Although Canada faces tariffs on three sectors, the overall effects have been contained. The economy has weakened only slightly, job growth is robust and closely-tracked metrics of core inflation are firm. "Canada's economy is showing some resilience so far... inflation is close to our 2% target, but we see evidence of underlying inflation pressures," said Governor Tiff Macklem. The situation could change on August 1, the deadline for the United States and Canada to reach a trade deal and the date when U.S. President Donald Trump has threatened to impose 35% tariffs on some Canadian goods. The BoC aggressively eased rates by 225 basis points starting in June last year, but since March has paused as it waits to assess the impact of tariffs on the economy and prices. "Since April, the risk of a severe and escalating global trade conflict has diminished," the bank said in its quarterly monetary policy report. "Nevertheless, how U.S. trade policy will unfold remains highly uncertain." Rather than issuing forecasts, the bank presented three different scenarios. The first scenario assumes existing tariffs on steel, aluminum, automobiles and on goods not compliant with a continental free trade pact will be maintained, GDP contracts by 1.5% in the second quarter of 2025 and rises by 1% in the second half before reaching 1.8% in 2027, while total inflation stays close to 2% over the next two years. The other scenarios look at the impact should tariffs around the world decrease or increase. In the de-escalation scenario, lower tariffs improve the growth outlook and reduce the direct cost pressures on inflation while in the opposite scenario, higher tariffs weaken the economy and increase direct cost pressures, Macklem said. "We will be following tariff developments closely and assessing indicators of underlying inflation," he said, adding that the central bank would continue to support economic growth while ensuring inflation was controlled. "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate," he said. Money markets assume a more than 81% chance of another hold in interest rates in September and do not expect any more cuts this year. The Canadian dollar weakened after the monetary policy report and traded down 0.30% to 1.3811 to the U.S. dollar, or 72.41 U.S. cents.

CP NewsAlert: Bank of Canada holds interest rates steady at 2.75 per cent
CP NewsAlert: Bank of Canada holds interest rates steady at 2.75 per cent

Yahoo

timea day ago

  • Business
  • Yahoo

CP NewsAlert: Bank of Canada holds interest rates steady at 2.75 per cent

OTTAWA — The Bank of Canada held its benchmark interest rate steady at 2.75 per cent for a third straight decision. The central bank says the Canadian economy is showing signs of resilience in the face of tariffs from the United States, but U.S. trade policy remains unpredictable. More coming. The Canadian Press Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

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