BOC PREVIEW: BoC Rate Decision and Governor Statement due at 14:45BST/09:45EDT; Expected to hold rates at 2.25%

• The BoC is expected to hold rates at 2.25%, according to all economists surveyed by Bloomberg and Reuters, as well as money market pricing
• Trade uncertainty has increased amid the collapse of US-Canada talks and a new wave of tit-for-tat tariffs
• The meeting will not include an MPR update; Governor Macklem and Senior Deputy Governor Rogers press conference at 10:30EDT/15:30BST

SUMMARY: The BoC is expected to keep rates unchanged at 2.25% on Wednesday, according to all economists surveyed by Bloomberg and Reuters. Since the last meeting, inflation has slighty cooled, as July's measures of inflation rose M/M and topped expectations, but the June inflation metrics were cooler than anticipated and have shown a net reduction over the last two months. Employment growth was stronger than expected in July, accompanied by a slight decline in the unemployment rate despite an uptick in the participation rate. GDP growth fell short of expectations in Q2; June printed above expectations. That said, uncertainty surrounding the Middle East conflict and trade relations with the US remains a hindrance to growth. Canada suspended negotiations with the US over excessive demands. Now, both countries are in a dollar-for-dollar tariff situation. Canada will match the US Section 338 tariffs - 50% tariffs on USD 27.6bln of Canadian goods - and will also introduce a $7.5bln support package of new and enhanced measures for Canadian workers and businesses. Oxford Economics writes that this won’t cause a recession, but greater uncertainty about Canada-US trade policy will weigh on the economy. As such, OxEco expects the mix of weaker growth, higher prices, and greater trade policy uncertainty to keep the BoC at 2.25% well into late 2027 and possibly into 2028. But if the economy falters more than they expect and prevents businesses from passing these costs onto consumers, the BoC could temporarily cut the policy rate below 2% in the next 12 months.

EXPECTATIONS: The BoC is expected to hold rates at 2.25% at the September meeting, according to money market pricing and all 35 economists surveyed by Reuters. 47% of those surveyed said the BoC will hike at least once by the end of Q2 '27. Robert Both, macro strategist at TD Securities, said: “The way I think about the (recent)...tariffs is, it helps to offset some of the stronger data we've seen over the last few months.” In a Bloomberg survey, 13/15 economists said a recession this year is unlikely; almost 2/3 said they’ve lowered their forecasts for business investment based on recent trade developments. RBC’s economists Fan and Janzen wrote that “Heightened growth risks from new US tariffs and inflation risks from high oil prices likely created more discomfort for the BoC since their last meeting in July, but not enough to push them off the sidelines.”

DATA: Data since the July meeting has been encouraging, with inflation slightly easing, despite July being hotter-than-expected, mixed GDP growth in Q2/June, and the labour market posting three consecutive months of jobs growth, last seen in Q4 2025. Headline Inflation rose 0.5% M/M in July (exp. 0.4%, prev. -0.4%) and 3.0% Y/Y (exp. 2.9%, prev. 2.8%); meanwhile, the BoC averages lifted to 2.2% from 2.1%, yet still shy of the 2.3% seen in May. Employment grew 75.1k in July, accelerating from 18.2k (exp. 12.5k), driven by growth in full-time and part-time employment. The unemployment rate ticked lower to 6.4% from 6.5% despite an uptick in the participation rate to 65.1% from 65.0%. GDP growth was 3.3% Q/Q in Q2, shy of the expected 3.4%, whilst rising 0.3% M/M in June, above the expected 0.2%. Oxford Economics believes that the recent improvement in the job market will be welcome news at the BoC, but doesn’t think it will change its view that the labour market remains soft, which helps limit upside risks to inflation. Separately, PPI unexpectedly rebounded in July, rising 0.6% M/M (exp. -0.4%, prev. -1.4%).

COMMENTARY/MPR: At the last meeting, in which the BoC kept rates at 2.25%, the Governing Council cited continued comfort that the current policy rate is appropriate to support the economic recovery while returning inflation to its 2% target. Governor Macklem reiterated that the BoC is looking through the direct impact of higher oil prices on inflation but warned that "the longer they remain elevated, the bigger the risk they spill over to other goods and services". He added that if higher oil prices begin feeding more broadly into inflation, consecutive rate hikes may be required to keep inflation under control. The BoC Minutes unveiled that members still saw limited evidence that higher oil prices were spilling over to the prices of other goods and services. Elsewhere, the MPR raised the Bank's 2026 inflation forecast and lowered its growth forecast, while making the opposite revisions for 2027. Policymakers continue to expect CPI inflation to remain elevated in June before easing gradually over the coming months and returning to around 2% in early 2027. Since the meeting, remarks from BoC members have been light. This week's meeting will not include an updated MPR. The usual press conference by Governor Macklem and Senior Deputy Governor Rogers will take place at 10:30 ET.

Decisions without an MPR update have historically been the lower-information events on a central bank's calendar: the statement and press conference carry the signal, and in hold episodes the market reaction tends to hinge on changes to the reaction-function language rather than the rate itself. The tension here is a classic stagflationary mix, firmer inflation and energy prices against tariff-driven growth risk, and banks in this position have typically sat on the sidelines and framed policy as conditional on whether cost pressures spill into broader prices, as the Governor's prior remarks on oil pass-through already do. The distinction worth drawing is between a hold framed as extended pause versus one that keeps a hike live: explicit reference to consecutive hikes if spillovers materialise would steepen the front end via the near-term path, while emphasis on trade downside flattens it. With no new projections, the press conference is the venue where such tilts have surfaced before, and the Governor has prior form for using it to sharpen conditionality. Follow-ons are the next inflation print and any read-through from officials on whether tariff effects are being treated as a level shock to look through or a persistent impulse.