Bank of Canada officials split on whether economic rebound will hold as tariff risks loom

Members of the Bank of Canada's governing council were split over how sustainable a recent economic rebound could be, according to deliberations from the central bank's rate decision earlier this month.

The Bank of Canada held its benchmark interest rate steady at 2.25 per cent for a sixth straight time at its July 15 decision. Minutes tracking council's discussions were released Wednesday. Officials were growing more confident in the economy during the second quarter following a year of flat growth. Higher global oil prices and signs of a recovery in the housing market were supporting growth over the previous three months. Surveys of businesses and a recent pickup in exports suggested firms were adapting to tariffs and persistent trade uncertainty from the United States.

The central bank expects real gross domestic product rose 2.5 per cent on an annualized basis last quarter, and is forecasting modest growth to continue through the second half of the year and into 2027. Monetary policymakers were confident about the second-quarter rebound, the meeting minutes showed, "but there was a range of views among governing council members about the sustainability of the rebound beyond the near term."

"Members agreed they would need to monitor the data closely for signs that growth was broadening as projected in the July report," the report read. Though inflation ticked up to 3.2 per cent in May, there were few signs inflation was spreading beyond energy prices. More recent data showed the annual inflation rate eased to 2.8 per cent in June as the prospect of peace between the United States and Iran helped cool price pressures.

The Bank of Canada's July rate decision came before Washington's latest threat of 50 per cent tariffs on a range of Canadian goods, though governing council noted in its meetings that "the possibility of new U.S. tariffs was an ever-present downside risk to growth." If oil prices increased and stayed higher, spillovers to other prices could increase, raising the risk that inflation would broaden, according to the minutes.