The Bank of Canada kept its benchmark rate at 2.25%, unchanged since October 2025, citing “a broadening recovery” despite the US trade war and the US war on Iran. Inflation risks have tilted upward and fresh tariffs make the growth picture harder to read, the bank said, even though Statistics Canada put annualized second-quarter growth at 3.3%. Most of the overshoot above the 2% target comes from gasoline, which the Iran war and Strait of Hormuz blockades have made costlier, and rate hikes would do nothing about. Governor Tiff Macklem said the Middle East is a bigger inflation problem than Canada’s counter-tariffs, though he added that tariffs would hit targeted sectors hard. About 5% of what Canada ships to the US is tariffed now, and any escalation could stall investment and hiring.
