Bank of Canada Maintains Policy Rate at 2.75%
On Wednesday, July 30, 2025, the Bank of Canada held its target for the overnight lending rate at 2.75%, marking the third consecutive decision to hold rates steady.
The Bank reiterated that U.S. trade policy remains unpredictable, with new trade actions still being threatened as we approach the looming August 1 deadline for trade negotiations between Canada and the U.S.
The Bank estimated that Canada’s second quarter Gross Domestic Product (GDP) likely contracted by 1.5% due to a reduction in Canadian exports to the U.S. post-tariff implementation. The Bank also noted that growth in spending is being weighed down by continued economic uncertainty, and labour market conditions in tariff-affected sectors has weakened.
Consumer Price Index (CPI) inflation rose to 1.9% in June as high shelter prices, particularly for rent, remain the main contributor to overall inflation. The bank estimates that underlying inflation is around 2.5%, which remains within its target of 1-3%.
The Bank mapped out three scenarios for its Canadian economic forecasts:
Current tariffs remain in place
GDP growth picks up to 1% in the second half of 2025, advances to 2% by 2027.
Exports stabilize and household spending increases gradually.
Total inflation stays close to 2%.
De-escalation of tariffs
GDP growth rebounds faster.
Lower tariffs reduce upward pressure on inflation.
Escalation of tariffs
GDP continues to decline through the remainder of 2025.
Higher tariffs increase upward pressure on inflation.
Given high levels of uncertainty, the Governing Council opted to hold rates steady. The Bank continues to assess the evolution of downward pressures on inflation from a weaker economy against upward pressures on inflation from higher costs related to tariffs. In its closing notes, the Bank stated that its focus would remain on price stability for Canadians, paying particular attention to the following risks and uncertainties:
the extent to which higher tariffs reduce demand for Canadian exports;
how much this spills over into business investment, employment and household spending;
how much and how quickly cost increases are passed on to consumer prices; and,
how inflation expectations evolve.
The Bank of Canada will make its next scheduled interest rate announcement on September 17, 2025.
