Bank of Canada Maintains Overnight Rate at 2.75% Amid Trade Uncertainty
Bank of Canada Maintains Overnight Rate at 2.75% Amid Trade Uncertainty
On April 16, 2025, the Bank of Canada announced its decision to keep the overnight interest rate steady at 2.75%, marking the first pause after seven consecutive rate cuts since June 2024. This decision reflects the central bank’s cautious approach amid escalating global trade tensions and economic unpredictability.
Governor Tiff Macklem highlighted the significant shift in U.S. trade policy, noting that the unpredictability of tariffs has increased uncertainty, diminished prospects for economic growth, and raised inflation expectations. The central bank emphasized that the future remains unclear, with unknowns surrounding the imposition, reduction, or escalation of tariffs and their duration.
The Bank’s April Monetary Policy Report outlines two potential scenarios: one with limited tariffs and stable inflation near 2%, and another involving a broader trade war leading to a Canadian recession and inflation temporarily exceeding 3%. These scenarios underscore the challenges in projecting GDP growth and inflation in Canada and globally.
Recent economic data indicates that Canada’s inflation rate cooled to 2.3% in March, partly due to falling gas prices and weaker travel demand to the U.S. amid the trade war. However, the central bank remains vigilant, monitoring how higher tariffs might reduce demand for Canadian exports, impact business investment, employment, and household spending, and how quickly cost increases from the trade conflict are passed on to consumer prices.
The Bank of Canada signaled its commitment to maintaining price stability for Canadians, stating that while monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war, it can and must maintain price stability. The next interest rate decision is scheduled for Wednesday, June 4, 2025.
