Reading between the lines: boc's latest decision to hold the overnight rate.

The Bank of Canada held the overnight rate at 2.75%. On the surface, that might seem like a steady hand at the wheel. But read carefully—and it’s clear the Bank is walking a tightrope between inflation risks, trade shocks, and softening growth.

Let’s break this down.

First, the fact that the Monetary Policy Report has no conventional base case forecast is the tell. That’s not just caution—that’s a signal that the ground is too unstable to even pretend certainty. Instead, they give us a tariff scenario and two wild cards—escalation or de-escalation. That’s central bank-speak for: “We don’t know what’s coming next, and the upside is as plausible as the downside.”

Second, look at what they’re willing to admit:

GDP contracted in Q2.
The unemployment rate is ticking up.
Wage growth is fading.
There’s “excess supply” in the economy.

At the same time, inflation—particularly core inflation—is still hovering around 2.5%. The Bank says inflation is easing, but they hedge immediately: costs from restructured trade flows (new suppliers, new routes) could drive prices up again. That’s code for: we can’t ease yet, because inflation isn’t truly under control.

So what’s the play?

They’re choosing to hold rates—not because the path is clear, but because they’re cornered. On one side: inflation that won’t quit. On the other: slowing exports, rising jobless rates, and weakened consumer confidence due to uncertainty.

And let’s be honest—U.S. tariffs are the elephant in the room. The BoC openly admits Canada’s growth is on a lower trajectory because of them. And there’s no sign the U.S. will reverse course. That means businesses are absorbing supply chain costs and passing them on to consumers—slowly, but inevitably.

The final paragraph sums it all up:

“We will continue to assess... the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs.”

Translation? Rates could go higher if inflation accelerates, and cuts are only on the table if trade disruptions magically disappear and growth nosedives. Neither is likely in the short term.

So here’s what I’m telling our clients:

Don’t mistake this hold for stability. This is not a breather—it’s a recalibration under duress. Fixed rates may not spike overnight, but the environment supports “higher for longer.” Inflation isn’t beaten. Trade friction is structural. And rate relief is tied to geopolitical decisions, not domestic fundamentals.

You don’t wait for a house to catch fire to install sprinklers. If you’re sitting on variable debt, or facing a renewal inside 12 months, this is the window to act.

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