Bank of Canada Holds Key Interest Rate at 2.75%

Ottawa— The Bank of Canada announced today that it is maintaining its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. The decision reflects growing concerns over the global economic outlook, driven largely by mounting trade tensions and policy uncertainty stemming from the United States.

According to the Bank’s April Monetary Policy Report (MPR), the unpredictability of U.S. trade policy—particularly tariffs—has cast a shadow over global markets. The Bank noted that uncertainty is now so pervasive that it has become unusually difficult to forecast GDP growth and inflation trends for both Canada and the global economy.

To navigate this unprecedented environment, the MPR outlines two potential scenarios:

1. Limited Tariffs, High Uncertainty: Canadian economic growth slows temporarily, but inflation remains close to the 2% target.
2. Prolonged Trade War: Canada could enter a recession this year, with inflation rising above 3% in 2026.

Other global trends are also weighing on Canada’s outlook. Despite solid global growth in late 2024, recent volatility in financial markets—fueled by erratic tariff announcements and threats of escalation—has dampened sentiment. Oil prices have dropped significantly since January, and Canada’s dollar has appreciated due to a weakening U.S. dollar.

At home, the Canadian economy is already feeling the pinch. Business investment, consumer spending, and residential investment all declined in the first quarter of 2025. Labour market recovery is also stalling, with employment falling in March and businesses signaling plans to reduce hiring. Wage growth has shown further moderation.

Inflation stood at 2.3% in March, down from February but higher than January’s 1.8%. The Bank cited the end of a temporary GST/HST suspension as a driver, though inflation is expected to ease moving forward due to lower oil prices and the recent removal of the consumer carbon tax. However, tariffs and supply disruptions are expected to exert upward pressure on prices in the months ahead.

While short-term inflation expectations have risen, long-term expectations remain anchored. The Bank stressed that monetary policy cannot resolve trade disputes, but its focus will remain on preserving price stability and supporting economic growth during this turbulent period.

The Bank of Canada’s next interest rate announcement is scheduled for June 4, 2025, and the next Monetary Policy Report will be released on July 30, 2025.