Despite ongoing global trade tensions, the Bank of Canada (BoC) announced today that it will maintain its benchmark interest rate at 2.75%, holding steady for April 2025. This move marks a pause in the Bank’s recent trend of monetary easing, which saw seven consecutive rate cuts since June 2024.
Economic Slowdown and Wage Trends
The Canadian economy is showing signs of slowing. Uncertainty stemming from new tariffs has weighed on consumer and business confidence, leading to weaker household spending, residential investment, and business activity in Q1.
Labour market recovery is also stalling. Employment fell in March, and many businesses report plans to scale back hiring. Wage growth, while still present, is beginning to moderate.
Inflation Outlook: A Balancing Act
Inflation stood at 2.3% in March, down from February but higher than the 1.8% recorded earlier this year. The recent uptick is partly due to the rebound in goods prices and the return of GST/HST charges.
Starting in April, inflation will be temporarily pulled down by the removal of the consumer carbon tax, while lower global oil prices should also contribute to easing price pressures. However, ongoing tariffs and supply chain disruptions could push certain prices higher, depending on how businesses pass along rising costs.
While short-term inflation expectations are rising, long-term expectations remain stable.
Global Headwinds
Globally, the picture is mixed. Late 2024 saw decent economic growth and easing inflation, but the outlook has since weakened.
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U.S. growth is slowing amid rising policy uncertainty, with inflation expectations on the rise.
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The eurozone is struggling with weak manufacturing activity.
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China, after a strong end to 2024, is also showing signs of deceleration.
Meanwhile, global financial markets have been rocked by tariff-related volatility. Oil prices have dropped significantly since January, driven by lowered global growth expectations. The Canadian dollar has appreciated slightly, largely due to recent weakness in the U.S. dollar.
Navigating an Uncertain Future
The BoC highlighted the challenges posed by rapidly evolving U.S. trade policy, which has increased economic uncertainty and made forecasting more difficult. Instead of a firm projection, the Bank presented two possible scenarios:
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Limited Tariffs, High Uncertainty – Economic growth slows but remains positive, with inflation near the 2% target.
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Prolonged Trade War – Canada enters a recession, and inflation briefly rises above 3% in 2026.
The Bank acknowledged that many other outcomes are possible, given the unpredictable nature of current global dynamics.
Policy Stance: Caution and Flexibility
Going forward, the BoC plans to take a cautious, data-driven approach—balancing weaker economic growth against rising inflation risks. It will carefully monitor how tariffs impact exports, business investment, employment, consumer spending, and inflation expectations.
While monetary policy can’t resolve trade tensions, the Bank emphasized its commitment to maintaining price stability and supporting confidence in the Canadian economy through this period of upheaval.
Looking Ahead
The BoC’s next interest rate announcement is scheduled for June 4, 2025. Until then, you can visit our Resources page for ongoing analysis and updates.