Bank of Canada Holds Interest Rate at 2.75% Amid Global Uncertainty
The Bank of Canada has decided to keep its main interest rate, known as the overnight rate, at 2.75%. The Bank Rate is at 3%, and the deposit rate is at 2.70%.
Since April, trade tensions between the U.S. and other countries, especially China, have eased a little, but uncertainty remains. While some tariffs have been reduced, many are still in place, and new ones are being threatened. This makes it hard to predict how global trade will develop.
Around the world, economies have been doing fairly well, but some of that growth came from businesses rushing to ship goods before tariffs hit. In the U.S., people are spending, but the economy slowed in the first part of the year because of more imports. Inflation in the U.S. is still above 2%, and the full impact of tariffs on prices hasn’t hit yet. Europe’s economy is being helped by exports and plans to spend more on defence. China’s economy is slowing, and higher tariffs are hurting its exports. Stock markets have mostly recovered from April’s turmoil, but they’re still sensitive to U.S. policy changes. Oil prices are staying about the same as they were in April.
In Canada, the economy grew a bit more than expected in the first quarter of 2025. This was mostly because of a boost in exports to the U.S. and companies stocking up on goods. But consumer spending slowed, housing sales dropped, and government spending decreased. The job market weakened, especially in areas that rely on trade, and unemployment rose to 6.9%. The economy is expected to slow down more in the second quarter.
Inflation dropped to 1.7% in April, mainly because the federal carbon tax was removed. Without taxes, inflation actually went up slightly to 2.3%. The Bank of Canada is paying close attention to inflation because surveys show that people and businesses still expect prices to rise due to tariffs.
Because of the uncertainty around U.S. trade policies, a slightly weaker Canadian economy, and recent signs that inflation might not fall as much as expected, the Bank has decided to wait before making any changes to interest rates. It wants to see more data before acting.
The Bank of Canada says it’s being cautious. It’s keeping an eye on how U.S. tariffs affect Canadian exports, jobs, business investment, and consumer prices. It also wants to make sure Canadians trust that inflation will stay under control while helping the economy grow.
Note:
The next interest rate decision will be announced on July 30, 2025, along with the next Monetary Policy Report (MPR).
