The decision reflects growing uncertainty around U.S. trade policy and signs of economic resilience. The hold was anticipated by most economists, but market reactions were mixed.
The central bank’s cautious approach comes as Canadian policymakers assess the fallout from escalating tariff tensions with the United States. These trade disputes, largely driven by U.S. President Donald Trump’s protectionist agenda, continue to inject volatility into global markets and cloud the outlook for Canadian growth.
Governor Tiff Macklem highlighted the unpredictability of ongoing trade negotiations as a central factor in the decision. While the Canadian economy has shown some surprising strength, Macklem emphasised the need for clarity before making further monetary moves. The BoC also noted a modest uptick in core inflation, suggesting price pressures may be more persistent than initially thought.
Although inflation remains a concern, the Bank has signalled it will take a measured approach, relying on upcoming economic data rather than reacting to short-term shifts. Two Consumer Price Index (CPI) reports are due before the next interest rate announcement on July 30. These will play a pivotal role in shaping future policy decisions.
Not all analysts are convinced the BoC’s wait-and-see stance is right. Some economists have argued that keeping the rate unchanged risks allowing economic softness to deepen. The Canadian labour market remains fragile, and consumer confidence has yet to recover. Critics contend that a pre-emptive rate cut could offer timely support to struggling sectors and cushion the impact of trade-related disruptions.
Others believe the Bank is wisely preserving room to manoeuvre. With inflation still above target and signs that the economy is not deteriorating as quickly as feared, a premature cut could compromise longer-term stability. Internal consumer data, such as credit and debit card activity, suggests spending picked up in April. This offers hope that domestic demand is stabilising.
The possibility of another rate cut later this year remains firmly on the table. Without a breakthrough in trade negotiations, Canada could slide into a recession, prompting the BoC to act more decisively. Economists from several major banks continue to predict one or two more cuts before year-end.
The BoC hopes to return to more standard economic forecasting by July, moving away from the dual-scenario approach it adopted in response to heightened volatility. However, this plan remains contingent on the pace and consistency of U.S. trade policy announcements.
In the meantime, Canadian businesses and households must navigate a period of uncertainty, with monetary policy balanced between managing inflation and the risks of a slowing economy.
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