The Bank of Canada has announced that it will maintain its target for the overnight rate at 2.75%. The Bank Rate remains at 3%, and the deposit rate is set at 2.70%.
Since the April Monetary Policy Report, there have been fluctuations in tariffs as the US administration continues to adjust them. Although China and the United States have reduced some tariffs and initiated trade negotiations with several countries, uncertainty persists. Tariff rates are still higher than they were at the start of 2025, and new trade actions are being considered.
Globally, economic resilience has been observed recently, partly due to a temporary increase in activity aimed at preempting tariffs. In the United States, domestic demand was robust; however, an increase in imports negatively impacted first-quarter GDP. Inflation in the US has decreased slightly but remains above 2%, with potential tariff effects yet to be felt. European growth has been supported by exports and increased defense spending. China’s economy is slowing as past fiscal support diminishes, and high tariffs are starting to affect Chinese exports to the US.
In Canada, first-quarter economic growth reached 2.2%, surpassing expectations slightly but aligning with forecasted GDP composition. Export activities directed toward the US and inventory accumulation drove this growth while final domestic demand remained stable. Business investment grew due to strong machinery and equipment spending despite a decline in consumer confidence affecting consumption growth. Housing activity fell sharply alongside government spending reductions.
The labor market showed signs of weakening, especially in trade-sensitive sectors, leading to a rise in unemployment to 6.9%. The second quarter is expected to see weaker economic performance as export strength diminishes and domestic demand stays low.
April’s CPI inflation eased to 1.7% following a reduction caused by eliminating the federal consumer carbon tax which lowered inflation by 0.6 percentage points. Excluding taxes, inflation rose slightly more than anticipated at 2.3%. Core inflation measures also saw an uptick.
The Governing Council’s decision to hold rates stems from continued uncertainty over US tariffs coupled with unexpected firmness in recent inflation data: “We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”
Council members are cautious about risks facing Canada’s economy including impacts from US tariffs on Canadian exports, business investments, employment trends, household spending patterns as well as how cost increases might influence consumer prices: “We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.”
The next announcement regarding changes in overnight rate targets is scheduled for July 30th when another Monetary Policy Report will also be released.
