The Bank of Canada held its target for the overnight rate at 2.75% today, maintaining the Bank Rate at 3% and the deposit rate at 2.70%, citing ongoing global trade uncertainty, modest domestic growth, and mixed inflation signals.
The central bank’s decision follows slightly stronger-than-expected first-quarter growth of 2.2%, buoyed by an advance in exports and inventory accumulation. However, the Bank warned that these gains are likely to reverse in the second quarter, and final domestic demand remains subdued.
“While the Canadian economy has not weakened sharply, it has softened,” the Bank said in its statement. “At the same time, recent inflation indicators have shown more persistence than expected.”
April’s consumer price index (CPI) inflation fell to 1.7%, largely due to the elimination of the federal consumer carbon tax, which shaved off 0.6 percentage points. But excluding taxes, inflation rose to 2.3%, with core inflation measures trending slightly upward—reflecting firming price pressures that the Bank says it is monitoring closely.
Globally, the economic environment remains volatile. The United States and China have scaled back some of their most aggressive tariff policies, and new bilateral trade negotiations are underway. Yet the Bank noted that outcomes remain highly uncertain, with new trade threats looming and tariff rates still elevated compared to early 2025.
This volatility, the Bank noted, has spilled into Canadian export and investment performance. The labour market is weakening, especially in trade-sensitive sectors, and the national unemployment rate now stands at 6.9%. Housing activity has also declined, with a notable drop in resales, while consumer spending has softened amid falling confidence.
In response, the Bank said it will adopt a cautious stance in the coming months, carefully balancing downside risks to growth against upward price pressures driven by tariffs and cost-passing by businesses.
“Governing Council decided to hold the policy rate as we gain more information on U.S. trade policy and its impacts,” the statement reads. “We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures from higher costs.”
Looking ahead, the Bank identified several key risks it is tracking: the potential impact of U.S. tariffs on Canadian exports, spillover effects on investment and household spending, the pace at which costs are passed through to consumers, and shifting inflation expectations.
“The Bank of Canada is focused on ensuring Canadians retain confidence in price stability through this period of global upheaval,” the statement concluded.
The next scheduled interest rate decision is set for July 16, 2025.
