Economic uncertainty kept the Bank of Canada from cutting rates in July

[Closeup macro Bank of Canada words on a green 20 dollar Canadian money bill]
JulieAlexK

The Bank of Canada's Governing Council considered a 25-basis-point rate cut at its July meeting, but agreed to keep its rate unchanged [https://seekingalpha.com/news/4474273-bank-of-canada-holds-policy-rate-at-275]as it waited for more clarity on how households, businesses and governments adapt to tariffs, it said in its meeting summary on Wednesday.

"Overall, members agreed that it was still too early to assess how tariffs and the rewiring of trade would affect economic activity and inflation in Canada," the central bank said in the summary.

The council "agreed that US trade actions were a structural shock to the global and Canadian economies." The monetary policy part of the discussion focused on the "appropriate role for monetary policy in the context of a shock that affects both supply and demand."

Like in the U.S., monetary policy isn't well-suited to address supply shocks. However, raising interest rates can tamp down demand.

Some members held the belief that the bank had already lowered rates enough to support the expected changes in the economy. "Given the lagged effects of monetary policy, there was a risk that further easing might take effect only as demand was recovering, which could add to price pressures," according to this faction of the council.

Others thought that further policy support would be needed "given the estimated amount and persistence of slack in the economy, particularly if the labour market softened further." If upside risks to underlying inflation weren't materializing, there could be more room to ease monetary policy further, reducing economic slack, they argued.

The council members agreed that it was important to emphasize that the unusual degree of uncertainty makes it necessary to consider a shorter horizon than usual in their monetary policy deliberations, the summary said. [https://www.bankofcanada.ca/2025/08/summary-of-governing-council-deliberations-fixed-announcement-date-of-july-30-2025/]

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