The Bank of Canada held its benchmark interest rate steady at 2.25% on Wednesday, marking a seventh consecutive pause. Governor Tiff Macklem made clear that the re-escalating trade war with the United States is not the only risk on policymakers’ radar, with cost pressures from the war in Iran also being watched for any spillover into broader consumer prices.
Macklem said inflation risks have become sharper since the last rate decision in July. Global oil prices remain persistently high and the Middle East conflict shows no sign of ending. Canada’s economy had been rebounding before new U.S. tariffs took effect on August 22, but those duties are expected to weigh on fourth-quarter growth, hitting targeted sectors hard while having a limited direct impact on the wider economy. Canada plans retaliatory tariffs on September 8, and Washington has threatened further escalation.
“Monetary policy cannot offset the effects of tariffs or influence global energy prices. What we can do is ensure global developments don’t jeopardize price stability in Canada,” Macklem said. Inflation stood at 3% in July, a full percentage point above the central bank’s 2% target. Frances Donald, chief economist at RBC, said Macklem broke from market expectations by emphasizing upside inflation risks, signaling greater concern about a resurgence in prices than about damage to growth. Stephen Brown of Capital Economics said a rate hike in December is now on the table, and markets have priced in three quarter-point increases by mid-2027. The five-year Government of Canada bond yield climbed to its highest level in more than two years, meaning some tightening is already underway.
With macro risks intensifying and the central bank’s ability to respond limited, long-term investors need to focus on companies with solid fundamentals, durable growth and the resilience to navigate changing conditions. Four Canadian stocks stand out as core long-term holdings.
Aritzia (TSX: ATZ) has delivered double-digit revenue and earnings growth, consistently outperforming the broader market. Durable consumer demand, boutique network expansion and strong engagement across physical and digital channels support continued margin expansion and earnings growth. Efficient inventory management and cost controls add further upside.
Bank of Montreal (TSX: BMO) combines diversified revenue streams with a growing earnings base. The bank has paid dividends for 197 consecutive years and raised them at an average annual pace of about 5.7% over the past 15 years. Investments in digital capabilities and artificial intelligence are improving efficiency, while loan and deposit growth support profitability and shareholder returns.
MDA Space (TSX: MDA) operates across satellite systems, robotics, space operations and geointelligence, benefiting from rising government and defence budgets, increasing demand for satellite connectivity and growing use of space-based data. A roughly $40-billion opportunity pipeline and acquisitions of CLS and Blue Canyon Technologies expand its addressable market and recurring revenue potential.
Dollarama (TSX: DOL) offers a defensive business model that performs well in all economic conditions. Broad assortment, fixed low prices and growing penetration of high-margin private-label products attract a wide customer base while supporting consistent profitability. The retailer has raised its dividend regularly since 2011, and store network expansion, international opportunities and stronger delivery partnerships position it for continued growth.
Faced with inflation, trade friction and elevated energy prices, the Bank of Canada has made the risks clear. With monetary policy unable to directly offset external shocks, selecting stocks with durable fundamentals and long-term growth logic remains a key path for investors seeking to build wealth through the cycle.
