GDP growth, future uncertainty, and the path of inflation all weighed on the decision
Despite a lack of market consensus going into its announcement this morning, the Bank of Canada (BoC) elected to hold interest rates steady at 2.75 per cent.
The decsision comes amid a flurry of mixed signals and datapoints for the Canadian economy. Recent data on GDP growth and inflation point to an improving overall picture. Q1 GDP growth surprised analysts to the upside, with the caveat that pre-tariff inventory stocking from US importers may have skewed the figure somewhat. CPI in April cooled to 1.7 per cent, however that drop can largely be attributed to the removal of the consumer carbon tax. Key metrics like the price of groceries have continued to rise faster than the overall CPI rate.
"While the global economy has shown resilience in recent months, this partly reflects a temporary surge in activity to get ahead of tariffs," a press release accompanying the decision reads. "With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts."
This is the second hold in as many meetings, with the last interest rate cut occurring in March. At the most recent meeting in April, the Bank said they would be waiting to further assess the state of US-Canada trade relations. That question remains largely unresolved as yet and uncertainty around trade continues to cloud outlooks for the Canadian and global economies. Investors had priced in a roughly twenty six per cent chance of a cut at this meeting, largely as a result of the uncertain signals we have seen so far this year.
"Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs," the announcement reads. "China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high."
