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July 30, 2025BANK OF CANADA MONETARY POLICY The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank rate kept at 3.0% and the deposit rate at 2.7%.
While US trade policy has started to become more concrete, negotiations remain fluid and new action unpredictable. In light of this, the July Monetary Policy Report (MPR) does not present conventional base case projections for GDP growth and inflation in Canda, but rather a current tariff scenario, an escalatory scenario, and a de-escalatory scenario.
In the face of trade volatility the global economy has been reasonably resilient. US growth moderated in the first half of 2025, while the US labour market remained strong. The Euro area economy grew modestly in the first half of the year, while in China a decline in exports to the United States has been offset by an increase in exports to the rest of the world. Longer-term government bond yields have moved up, while Canada's exchange rate has appreciated against a broadly weaker US dollar. In the current tariff scenario, global growth is expected to slow modestly to around 2.5% by the end of 2025 before returning to around 3.0% in 2026 and 2027.
In Canada, US tariffs are disrupting trade, but the economy is showing some resilience so far. After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, the Bank expects GDP likely declined by about 1.5% in the second quarter. This is mostly due to a decline in exports following the pull-forward, lower US demand for Canadian goods, and business and household spending constrained by uncertainty. Labour market conditions have weakened in sectors affected by trade, but has held up in other parts of the economy. The unemployment rate has slowly increased since the beginning of the year, to 6.9% in June, while wage growth has continued to ease.
In the current tariff scenario, GDP growth is expected to increase to 1% in the second half of 2025 as exports stabilize and household spending gradually increases. Economic slack persists in 2026, and diminishes as growth picks up to close to 2.0% in 2027. In the de-escalatory scenario, growth rebounds faster, while in the escalatory scenario the economy contracts though the rest of 2025.
CPI inflation was 1.9% in June, up slightly from the previous month. Excluding tax changes, inflation rose 2.5% in June reflecting an increase in non-energy goods prices, with high shelter price inflation remaining the main contributor to overall inflation. Underlying inflation is assessed to be around 2.5%.
Governing Council will continue to asses the risks and uncertainties facing the Canadian economy, including: the extent to which higher US 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 Governing Council remains focused on ensuring Canadians have confidence in price stability through this period of global upheaval, and will support economic growth while ensuring inflation remains well controlled.
The next scheduled date for announcing the overnight rate target is September 17, 2025
Source: Monetary Policy press release; Monetary Policy press conference; Monetary Policy Report
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