OTTAWA — Newly released documents show some members of the Bank of Canada were wondering last month whether the central bank’s benchmark interest rate is already low enough to support the Canadian economy through U.S. tariffs.
The Bank of Canada on Wednesday released the summary of deliberations from the meetings leading up to its decision on July 30 to hold the policy rate steady at 2.75 per cent.
Those minutes show the central bank’s governing council was fixed on how U.S. tariffs and the global trade “rewiring” were affecting inflation and the wider Canadian economy.
The summary of deliberations show that, in addition to a rate hold, monetary policymakers considered a quarter-point cut at the July meeting.
The central bank’s decision arrived just a couple days before U.S. President Donald Trump ratcheted base tariffs on Canada up to 35 per cent, while maintaining an exemption for goods compliant with CUSMA.
Despite the ongoing uncertainty, monetary policymakers noted there were some signs of economic resilience heading into the rate decision.
The deliberations show some members wondered if the Bank of Canada had already provided “sufficient support" to guide the economy through its tariff transition.
The central bank cut its policy rate seven consecutive times from June 2024 to March of this year in a bid to boost the economy as inflation showed signs of coming back under control.
Economists say much of the impact from a monetary policy decision tends to take effect a year or more after the move, so many of those rate cuts are just now starting to stimulate the economy.
In that vein, the Bank of Canada governing council wondered whether cutting rates now, only for the economy to recover on its own, would only end up fuelling inflation down the road.
“Given the lagged effects of monetary policy, there was a risk that further easing might take effect only as demand was recovering, which could add to price pressures,” the summary read.
Some forecasters, including RBC, have no further interest rate cuts in their base-case outlooks.
Others on the Bank of Canada’s governing council felt that signs of slack emerging in the economy could warrant additional cuts, particularly if the labour market started showing more weakness.
If incoming data showed inflation wasn’t straying too far from the central bank’s target of two per cent, there could be a need for a lower policy rate, those members argued in the deliberations.
Randall Bartlett, deputy chief economist at Desjardins, said in an interview that the fact that the central bank considered a rate cut at its most recent meeting suggests the governing council is leaning toward further easing.
Desjardins expects the central bank will be in a position to lower its policy rate at its next meeting in September, with the possibility for additional cuts later in the year.
Bartlett said the apparent division among governing council just points to the lack of clarity among economic data about whether the economy needs a boost or not amid tariffs.
"There's just so much uncertainty where we are right now that it really is quite challenging to get a sense of what is the optimal monetary policy or level of interest rates to support the economy," he said.
Alongside the rate decision, the Bank of Canada issued three scenarios for how the U.S. tariff situation could evolve: one that saw the status quo persist, one that saw a de-escalation in trade restrictions and another that showed tariffs ramp up.
The governing council noted that none of those scenarios showed a “sharp rise in inflation” and recent surveys of consumers and businesses suggested inflation expectations remain well-anchored.
"If inflation allows the Bank of Canada to then turn its attention toward a weakening economy, there is a bit of a bias to provide a little more stimulus," Bartlett said.
Monetary policymakers said in deliberations that the impact of tariffs on consumer prices “appeared to be modest so far,” but those effects were only just starting to show up in the data.
“Members judged the risks to inflation to be elevated given evident pressures on underlying inflation and the uncertainty around the impacts that tariffs and trade disruptions could have on Canada’s economy over time,” the summary read.
The Bank of Canada will get a fresh look at inflation figures for July and August ahead of its Sept. 17 interest rate decision.
This report by The Canadian Press was first published Aug. 13, 2025.
Craig Lord, The Canadian Press
