Bank of Canada Maintains Policy Rate Amid Trade Uncertainty

The Bank of Canada announced its decision to keep the policy interest rate steady at 2.75%, as policymakers addressed persistent uncertainty generated by ongoing US trade actions and their knock-on effects for the Canadian economy.

While the domestic economy has shown some resilience, with first-quarter GDP growth surpassing expectations due to a temporary surge in exports, underlying weaknesses are emerging. The labour market has begun to soften, particularly in trade-exposed industries, and business sentiment points to more cautious hiring plans in the months ahead. Inflation data remains mixed; headline inflation eased to 1.7% in April, primarily due to the removal of the consumer carbon tax, but core inflation—measuring underlying price pressures—rose and could signal firmer inflation ahead as businesses face higher input costs from disrupted trade patterns. Given these conflicting signals and the unpredictable nature of US tariffs, Bank officials emphasized a wait-and-see approach, noting that future interest rate cuts are possible if domestic economic conditions deteriorate and inflationary pressures remain contained.

This cautious stance highlights the central bank's commitment to balancing economic support and inflation control during a period of heightened global trade uncertainty.