Rate call looms for BoC as tariff dispute deepens

Policymakers at the Bank of Canada meet on Wednesday to set borrowing costs, according to Mettis Global, and face pressure to weigh slowing growth against accelerating inflation. The outlook has clouded after trade talks between Canada and the United States broke down following new 50% US tariffs on a broad range of Canadian goods. Canada has answered with retaliatory duties on more than $20bn of goods, scheduled to start on September 8.

The central bank has kept its benchmark rate at 2.25% for six straight decisions, the latest in July, after a peak of 5%. The Canadian economy grew 0.8% in the second quarter, up from 0.1% in the first quarter. Headline inflation hit 3% on a yearly basis in July, compared with 2.8% in June, and traders now expect three rate increases within 12 months.

Bank of America, by contrast, forecasts that policymakers will leave borrowing costs unchanged for the coming months. Goldman Sachs estimates that Trump's tariffs will shave 0.3 percentage points off Canadian GDP growth while adding the same amount to inflation.