Canada’s central bank raised its key interest rate to 2.5% today, its first hike since 2023, citing rising oil prices driven by war in the Middle East.
The Bank of Canada has maintained that the economy faces two competing pressures – growth is being hampered by President Donald Trump’s trade war, but inflation is rising due to the US conflict with Iran.
The bank said today that Canadian businesses are “adapting” to the changing trade relationship with the US, suggesting growth could be stronger than initially expected.
There is, however, no indication that energy-price inflation is set to ease, it added.
“The conflict in the Middle East is now in its eighth month and there is no clear path to resolution,” the Bank of Canada said in a press release.
The bank added that Canada’s economy still faces “considerable uncertainty,” largely owing to the volatility in the trade relationship with the US.
Trump removed some tariffs on Canadian goods this month following a request from Maine Senator Susan Collins, who is in a tight re-election battle in a state that relies significantly on trade with Canada.
But the president has threatened new levies on additional Canadian goods, and there is no indication that a comprehensive US-Canada trade deal is imminent.
