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[Bank of Canada "On Hold": Economic Resilience and Inflation Concerns Amid Tariff Confusion] ⑴ On July 30th, Beijing time, the Bank of Canada announced that it would maintain its policy interest rate at 2.75%. ⑵ This decision was primarily based on three considerations: first, uncertainty stemming from US tariff rhetoric remains high; second, despite trade disruptions, the Canadian economy has thus far demonstrated some resilience; and third, while inflation is close to the 2% target, underlying inflationary pressures remain. ⑶ Bank of Canada Governor Tiff Macklem noted that due to the high uncertainty surrounding tariff policy, the Bank did not release its usual economic growth and inflation forecasts. Instead, it provided three scenario analyses to capture the potential trajectory of trade policy. ⑷ Macklem stated that Canada's economy experienced strong growth in the first quarter of 2025, primarily due to businesses frontloading exports to avoid tariffs. ⑸ However, the economy appears to have contracted in the second quarter, with exports to the US falling sharply. This represents both a "repayment" of previous overdrafts and a reflection of the tariffs suppressing US demand. ⑹ Despite this, the Canadian economy has shown resilience, with improved consumer and business confidence, continued growth in the labor market in non-trade-related sectors, and the unemployment rate rising modestly to 6.9%. ⑺ Regarding inflation, the Consumer Price Index (CPI) fell to just below 2% due to the removal of the carbon tax, but a range of indicators suggest that underlying inflation has risen from around 2% in the second half of last year to around 2.5% recently, primarily driven by rising prices for non-energy goods. ⑻ The Bank of Canada expects that under the current tariff scenario, downward pressure from the appreciation of the Canadian dollar, slowing unit labor costs, and excess supply in the economy will be roughly balanced by upward pressure from direct tariff costs, keeping inflation around 2%. ⑼ The Bank of Canada emphasized that it will closely monitor tariff developments and indicators of underlying inflation and is prepared to respond to new information to ensure price stability and support economic growth.