The Bank of Canada left interest rates unchanged at 2.25 per cent Wednesday, in its fifth monetary policy decision of the year.
Economists widely expected the central bank would remain on hold.
Inflation has jumped above three per cent in recent months as higher oil prices from the Iran war sent gasoline costs skyrocketing over the spring.
Governor Tiff Macklem at the central bank said in prepared statements that Canada’s economy has been impacted by tariffs and trade tensions with the United States, which resulted in what he called “choppy” GDP data.
“Canada’s GDP data over the past year was choppy and growth stalled as the economy adjusted to new tariffs, high uncertainty and slower population growth,” he said.
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Canada’s economy slipped into a technical recession in the first quarter of the year after annualized GDP fell modestly for two straight quarters.
This sparked debate among economists and policy makers as to whether the recession label should be taken at face value considering several other key areas of the economy were otherwise stable or expected to grow.
GDP bounced back in April, the national unemployment rate declined to 6.5 per cent in June, and the same month’s inflation report showed core consumer price growth was heading in the right direction despite higher gas prices.
“There are clear signs that economic growth has resumed in the second quarter,” said Macklem.
“While this largely reflects the unwinding of temporary factors
Officials at the Bank of Canada have made clear they’re willing to look beyond the initial price shock from the war but are prepared to act if there are signs inflation is spreading beyond the gas pumps.
The bank will also publish new forecasts this morning showing how the Iran war and other forces shaping the economy are affecting its outlook for growth and inflation.
Recent data on growth and the labour market suggest the economy is rebounding modestly from a weak first quarter.
Bank of Canada Governor Tiff Macklem is scheduled to speak to the media later this morning.
– with files from The Canadian Press
