The Bank of Canada has decided to hold its benchmark interest rate steady at 2.75%, marking a pause after seven consecutive rate cuts since June 2024. The central bank cited heightened uncertainty stemming from unpredictable U.S. trade policies and tariffs, which have significantly impacted economic outlooks domestically and globally.
Amid ongoing trade tensions, the bank presented two scenarios in its April Monetary Policy Report. The first envisions limited tariffs and high uncertainty, leading to a temporary slowdown in Canadian growth with inflation stabilizing around 2%. The second scenario foresees a prolonged trade war, potentially plunging Canada into recession and pushing inflation temporarily above 3%. These divergent paths underscore the unprecedented level of uncertainty faced, with the timing and magnitude of U.S. trade policy shifts remaining highly unpredictable.
READ: Canadian Business Outlook Clouded by Trade Tensions, Bank of Canada Survey Finds
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Global economic growth showed resilience late last year but has since been tempered by tariffs and policy uncertainty. The United States exhibits signs of slowing amid deteriorating sentiment, while inflation expectations have risen. Europe’s growth remains modest, with manufacturing sector weakness persisting, and China’s economy has cooled after a strong end to 2024.
In Canada, economic activity slowed in the first quarter, with declines in consumer spending, residential investment, and employment. Wage growth has moderated, and inflation stood at 2.3% in March, slightly below expectations but still above the 1.8% rate in January. The recent drop in global oil prices and the removal of the consumer carbon tax are expected to dampen near-term inflation, though supply chain disruptions and tariffs could exert upward pressure.
Governor Tiff Macklem emphasized the Bank’s cautious approach, highlighting that monetary policy cannot resolve trade uncertainty but remains vital for maintaining price stability amid global upheaval.
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