Bank of Canada Expected to Hold Interest Rates Steady Amid Resilient Labor Market and Benign Inflation

The Bank of Canada is expected to hold its trendsetting overnight interest rate at 2.75% when it concludes its latest policy meeting on July 30. Economists point to an uptick in recent inflation data and a resilient labor market as reasons for the central bank to remain on the sidelines. Canadian stocks such as Shopify (SHOP), Canada Goose (GOOS), and Thomson Reuters (TRI) are trading sideways.

The Bank of Canada is widely expected to maintain its trendsetting overnight interest rate at 2.75% at its latest policy meeting on July 30. Economists point to recent upticks in inflation data and a resilient labor market as reasons for the central bank to hold steady [1].

Avery Shenfeld, chief economist at CIBC, does not anticipate a rate cut, stating that while there is a slight chance of a surprise move, the central bank is more likely to keep rates unchanged [1]. The odds of a quarter-point rate cut are currently placed at just seven per cent by financial markets, according to LSEG Data & Analytics [1].

The Bank of Canada's decision comes amid persistent inflation readings and a strong labor market. Statistics Canada reported an unexpected gain of 83,000 jobs in June, driving the unemployment rate down to its lowest level since January [1]. However, despite this strength, Shenfeld expects that the labor market remains broadly weak, with the unemployment rate at 6.9 per cent [1].

Inflation has been a significant concern for the Bank of Canada. While annual inflation rose to 1.9 per cent in June, the core inflation figures held stubbornly around three per cent [1]. RBC economists Claire Fan and Abbey Xu noted that sticky inflation readings and a relatively resilient economic backdrop suggest that the central bank will not cut rates again in this cycle [1].

Trade uncertainty, particularly the ongoing tariff dispute with the United States, also plays a significant role in the Bank of Canada's decision-making process. Shenfeld expects the tariff dispute to have led to an economic contraction in the second quarter of 2025 [1]. However, he believes that the central bank will not be swayed by this short-term impact and will wait for more clarity on trade issues before considering further rate cuts.

The U.S. Federal Reserve is also expected to hold its interest rates steady at its meeting on July 30, amidst uncertainty from U.S. President Donald Trump's trade policy and attacks on Fed Chair Jerome Powell [2]. The Canadian dollar weakened against the U.S. dollar on July 25, as optimism over a potential trade deal waned [2].

Canadian stocks such as Shopify (SHOP), Canada Goose (GOOS), and Thomson Reuters (TRI) are trading sideways, reflecting market expectations of a rate hold by the Bank of Canada [3]. The focus will be on the Q2 GDP data and the employment report, which will provide further insight into the economy's health and guide future monetary policy decisions [2].

References:
[1] https://vancouver.citynews.ca/2025/07/28/bank-of-canada-widely-expected-to-hold-key-rate-steady-amid-trade-uncertainty/
[2] https://www.ainvest.com/news/bank-canada-fed-hold-interest-rates-trump-tariffs-attacks-powell-2507/
[3] https://www.politico.com/newsletters/morning-money/2025/07/28/why-labor-market-weaknesses-loom-large-for-trump-and-the-fed-00479556