Update: Bank of Canada Holds Rates, Keeps Door Open to Policy Adjustment Amid Upside Inflation and Lower Growth Risks

11:59 AM EDT, 09/02/2026 (MT Newswires) -- (Updates with Macklem comments in 9th and 11th paragraphs, details in 5th and 10th paragraphs, and Capital Economics comment in 6th paragraph.) The Bank of Canada left interest rates unchanged on Wednesday, as expected, against the backdrop of renewed Canada-US tensions and uncertainty over whether relations between the two countries will improve in the weeks ahead. The BoC held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. This was the seventh consecutive meeting without a change in rates. With the US war on Iran ongoing and the Strait of Hormuz largely closed, inflation risks have risen, as high oil prices, elevated refinery margins and the new US and Canadian tariffs could broaden price pressures, according to the BoC in its policy decision statement. "The upside risks to inflation have increased, while new tariffs make growth prospects more uncertain," said Governor Tiff Macklem in the press conference opening statement. "Governing Council will assess the sustainability of the economic rebound and the outlook for inflation, and is prepared to adjust monetary policy as needed." Canada's central bank adopted a hawkish tone on inflation Wednesday, while giving less weight to the trade war's potential drag on the economy than expected. The BoC "delivered a more hawkish message" tied to inflation on Wednesday, said Capital Economics Chief North America Economist Stephen Brown in a note. US-Canada trade negotiations broke down on Aug. 21, with relations hitting a low point. US President Trump imposed 50% tariffs on about $20 billion in Canadian goods, prompting Canada to announce similar-amount retaliatory tariffs that are scheduled to take effect next Tuesday. The latest round of US tariffs has further clouded the economic outlook amid investment uncertainty and hiring plans, while Canada's retaliatory measures risk adding to consumer price pressures. The new inflation estimates "will be front and center" of our policy decisions," added Macklem. Policy decisions will be "guided" by its inflation forecasts, with the BoC ready to hike rates multiple times if required, reinforcing the central bank's single inflation mandate. The BoC will release new inflation estimates at October's Monetary Policy Report. Governor Macklem said he would like US trade relations to return to "something more normal," but he didn't think they were "going back to where they were before" Trump's second presidency, as his administration favors tariffs as an economic measure.