The Bank of Canada has decided to maintain its policy interest rate at 2.75%, amid ongoing uncertainty in the economic landscape. The announcement was made by the Governor, who was accompanied by Senior Deputy Governor Carolyn Rogers.
“Uncertainty remains high,” stated the Governor. “The Canadian economy is softer but not sharply weaker. And we’ve seen some firmness in recent inflation data.” The decision to hold the rate comes as the bank seeks more information on US trade policy and its impacts.
The primary concern for the Canadian economy is the trade conflict initiated by the United States, which poses a significant challenge. Since April, there have been fluctuations in tariffs imposed by the US administration, affecting various sectors. While China and the United States have stepped back from extreme tariffs and started bilateral negotiations with other countries, outcomes remain uncertain. “Tariffs are well above their levels at the beginning of 2025,” noted the Governor.
In April, Governing Council emphasized monitoring how higher tariffs might impact demand for Canadian exports and influence business investment, employment, household spending, consumer prices, and inflation expectations.
Recent data shows that while US imports were strong initially due to businesses trying to circumvent tariffs, domestic demand remained robust. This led to a surge in Canadian exports and a first-quarter GDP growth of 2.2% in Canada, slightly exceeding forecasts.
However, challenges persist in Canada’s labor market with job losses concentrated in trade-intensive sectors leading to an unemployment rate increase to 6.9% in April. Despite these challenges, spending by Canadian families and businesses has shown resilience against US tariffs and uncertainty.
Inflation dynamics are also under scrutiny. The elimination of the consumer carbon tax reduced headline inflation to 1.7% in April but excluding taxes it stood at 2.3%. The Bank’s measures suggest underlying inflation could be firmer than anticipated due to higher goods prices resulting from trade disruptions.
Governing Council is closely monitoring inflation expectations as surveys indicate consumers anticipate price rises due to tariffs while businesses plan to pass on costs.
“There was a clear consensus to hold policy unchanged as we gain more information,” said the Governor regarding future policy direction amidst continued tariff-related uncertainties.
The Bank aims to ensure confidence in price stability during this period of global upheaval while supporting economic growth and controlling inflation effectively.
With these remarks concluded, both officials expressed readiness to address questions from attendees.
