Bank Of Canada Holds Interest Rates At 2.25%

(MENAFN- Daily Forex) The Bank of Canada (BoC) maintained its key interest rate at 2.25% on Wednesday, in a decision that was widely expected by the markets. The Canadian dollar has responded with slight gains against its U.S. cousin following the decision.

The BoC remains in a prolonged hold, as it has now maintained rates at 2.25% since October 2025 Concerned About Inflation Risk, New U.S. Tariffs

The central bank didn't tinker with interest rates at its meeting but had a somber message for the markets, noting its concern about high inflation and new U.S. tariffs on Canadian products.

Consumer inflation hit 3.0% in July, driven by the war in Iran, which has led to higher Canadian gasoline prices. BoC Governor Tiff Macklem said at his press conference after the rate announcement that inflation is“too high”, noting that inflation has been concentrated in gasoline and oil prices Slaps Canada with Punishing Tariffs

Another headache for the BoC is the escalation in the Canada-U.S trade war. In July, U.S. President Trump imposed 50% tariffs on around $28 billion worth of Canadian products, after trade negotiations between the sides collapsed. Canada has said it will retaliate with dollar-for-dollar tariffs against Washington, but with around 70% of Canadian exports going to the U.S., the new tariffs will mean lower growth and higher inflation. With the unpredictable Trump, the U.S. could respond to new Canadian tariffs with additional tariffs of its own, resulting in a further escalation of a trade war in which there are no winners.

The Bank's rate statement noted that“the upside risks to inflation have increased, while new tariffs make growth prospects more uncertain.” This did not translate into a rate hike yesterday, but the BoC will have to consider a hike if the tariff war continues or energy prices move higher. This leaves the central bank in a“wait-and-see” mode, as its rate path will very much depend on U.S. tariff policy and developments in the Persian Gulf Dollar Edges Higher, Stock Market Posts Gains after BoC Hold

The USD/CAD currency pair showed limited reaction to the BoC decision, as the markets had priced in a rate hold. The Canadian dollar rose 0.37% on Wednesday and is up 0.14% on Thursday, trading at 1.3842.

The S&P/TSX Composite index, the benchmark Canadian stock market index, posted gains on Wednesday, as investors had a positive reaction to the BoC decision, despite the Bank's warning that inflation is above target and U.S. tariffs are a real threat to Canada's economic growth.

The index climbed 265.88 points (0.74%) on Wednesday, closing at 23,040.

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