The Bank of Canada announced today that it is maintaining the policy interest rate at 2.75%. Governor and Senior Deputy Governor Carolyn Rogers addressed the media, highlighting ongoing uncertainties affecting the Canadian economy.
“Uncertainty remains high. The Canadian economy is softer but not sharply weaker,” said the officials. They noted firmness in recent inflation data as a reason for holding the policy rate steady while gathering more information on US trade policy impacts.
The trade conflict initiated by the United States was identified as a significant challenge for Canada’s economy. Since April, fluctuations in US tariffs have been observed, with China and the United States stepping back from extremely high tariffs. Despite some recovery in stock markets, uncertainty about trade negotiations persists, with new tariff actions being threatened.
The Governing Council has been closely monitoring how higher tariffs affect demand for Canadian exports and their spillover effects on business investment, employment, household spending, consumer prices, and inflation expectations.
The US economy showed resilience despite initial GDP decline due to strong imports ahead of tariffs. Early indicators suggest growth rebounding as imports decrease and domestic demand expands. This strength led to a surge in Canadian exports, boosting first-quarter GDP growth to 2.2%, slightly above forecasts.
However, domestic demand remained flat with strong machinery and equipment spending offsetting slower consumer spending and declining housing activity. The labor market weakened with job losses concentrated in trade-intensive sectors leading to an unemployment rate increase to 6.9% in April.
Inflation saw volatility due to factors like the elimination of the consumer carbon tax which reduced headline inflation by 0.6 percentage points in April. Inflation excluding taxes rose slightly stronger than expected at 2.3%. Core inflation measures also increased partly due to higher goods prices amid trade disruptions.
Governing Council emphasized monitoring both downward pressure on inflation from economic weakness and upward pressure from cost increases due to tariffs. There was consensus to hold policy unchanged while considering potential future rate reductions if economic conditions worsen under continued US tariff influence.
“We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” concluded the officials before opening up for questions from attendees.
