Bank of Canada Maintains Benchmark Interest Rate at 2.75%
Bank of Canada Maintains Benchmark Interest Rate at 2.75% in June 2025
Bank of Canada Maintains Benchmark Interest Rate at 2.75%, a position it has maintained since March and April of this year. This decision reflects the Bank’s cautious approach amid ongoing economic uncertainties, particularly regarding U.S. trade policy’s potential impacts on the Canadian economy.
Economic Performance and Outlook
Canada’s economy showed resilience in the first quarter, growing at a solid 2.2%. Key drivers included a boost from exports to the U.S. and inventory accumulation, while domestic demand remained relatively flat. Strong spending on machinery and equipment helped sustain business investment, even as consumer confidence dipped sharply, leading to a slowdown in consumption.
The housing market experienced a decline, mainly due to a significant drop in resale activity, and government spending was subdued. The labour market also faced challenges, with unemployment rising to 6.9%, especially in sectors heavily tied to trade. Looking ahead, the Bank anticipates a weaker second quarter, with expenditures remaining subdued as export and inventory gains diminish.
Inflation Trends
Inflation has decreased to 1.7% in April, aided by the federal consumer carbon tax, which shaved off 0.6 percentage points from the Consumer Price Index. Excluding taxes, inflation slightly exceeded expectations at 2.3%. Core inflation measures have also edged upward, signaling persistent inflationary pressures. The Bank is monitoring these indicators closely, especially as households and businesses anticipate tariff-related price increases.
Global Economic Context
Globally, economic resilience has been tested by trade tensions. U.S. demand remains solid but has been offset by higher imports, impacting GDP growth. U.S. inflation is gradually declining but remains above 2%, with tariffs influencing prices still to be felt. Meanwhile, Europe benefits from export strength, and China’s slowdown continues amid fading fiscal stimulus and higher tariffs curbing exports to the U.S.
Financial markets have largely recovered from April’s turmoil, with volatility easing but remaining sensitive to U.S. trade policy signals. Oil prices have stayed relatively stable, hovering near April levels.
The Bank’s Rationale
Given the high level of uncertainty surrounding U.S. tariffs and their effects, the Bank opted to hold interest rates steady, aiming to gather more information on trade developments and their economic impact. The Governing Council highlighted the need for caution, balancing downward pressures from a weaker economy against upward pressures from rising costs.
Looking Ahead
Uncertainty remains elevated, as negotiations between the U.S. and China continue, and additional trade actions are possible. The Bank emphasized close monitoring of key risks—including the actual impact of tariffs on exports, investment, employment, and inflation expectations.
Final Notes
The Bank’s Governing Council reaffirmed its commitment to supporting economic growth while maintaining price stability amidst global upheaval: “We are focused on ensuring that Canadians continue to have confidence in price stability… We will support economic growth while ensuring inflation remains well controlled.”
The next rate decision is scheduled for July 9, 2025. First National Financial will provide further insights following that announcement.
“While we understand the Bank of Canada’s choice to hold interest rates to combat inflation, today’s announcement comes as a disappointment to the thousands of British Columbian mortgage holders who are uncertain about their financial future.” Said Rebecca Casey, President of CMBA-BC. “Especially when affordability concerns are still on the rise, a rate cut would’ve gone a long way to ease some of the pressures facing Canadians.”
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