Bank of Canada holds rates and says tariffs cause structural damage

The Bank of Canada left its policy rate at 2.25% and said monetary policy cannot fully offset structural harm from U.S. tariffs; it signalled modest growth ahead with heightened uncertainty and said it is prepared to adjust policy if conditions change.

The Bank of Canada announced it kept its overnight policy rate at 2.25% and described limits to what monetary policy can do in the face of U.S. tariffs. Governor Tiff Macklem said monetary policy cannot compensate for structural damage caused by tariffs but can help support the economy through adjustment while maintaining inflation. The Bank said uncertainty around its outlook is elevated and that it is ready to respond if trade or economic conditions change. The Canada-United States-Mexico Trade Agreement (CUSMA) is scheduled for review later this year, which the Bank noted could affect outcomes. Key points: - The Bank of Canada held the overnight policy rate at 2.25%, the second consecutive decision to keep the rate unchanged. - Governor Macklem said monetary policy cannot target sector-specific tariff damage, though it can support overall adjustment and price stability. - The Bank projects modest economic growth and inflation near its two per cent target but described the outlook as more uncertain than usual and based its projections on tariffs remaining in place. - Recent indicators cited by the Bank include a 0.3% GDP decline in October, an unemployment rate of 6.8% in December, and consumer inflation at about 2.4% in December. Summary: The decision preserves current borrowing costs while the Bank monitors elevated uncertainty from U.S. trade restrictions and geopolitical risks. The Bank signalled it is prepared to change its policy rate if the economic outlook shifts, and the scheduled CUSMA review later this year is a key event that could influence that path.