Canada Interest Rate

The Bank of Canada held its benchmark interest rate unchanged at 2.75% in its April 2025 decision, as expected, to mark the first hold following 2.25 percentage points of cuts in seven consecutive decisions. The governing council noted that the unpredictability on the magnitude of tariffs placed downside risks on growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing. The higher uncertainty stemmed from no clear tariff path by the United States prompted the BoC Governing Council to present two economic scenarios in its latest Monetary Policy Report. Should the US limit the scope of its tariffs on Canada, the BoC expects growth to temporarily weaken and inflation to hold near the 2% target. Should the US proceed with an all-out trade war with Canada and China, the BoC penned a recession this year and inflation around 3%.

The Bank of Canada cut its key interest rate by 25bps to 2.75% in its March decision, as expected and previously signaled, to mark 225bps in rate cuts since the start of its loosening cycle in June 2024. The Governing Council noted that the Canadian economy grew more than expected in the fourth quarter with support from the past cuts in the policy rate, but growth is expected to slow at the turn of the year due to increasing trade conflict with the United States. The bank also noted that the continuously changing tariff threats from the US hurt gauges of consumer confidence and investment expectations, which are expected to erase the strong economic activity triggered by firms attempting to undercut trade barriers. In the meantime, the end of tax credits are expected to drive incoming inflation gauges to accelerate toward 2.5% after headline inflation remained below the 2% target for multiple months, but core gauges are set to gradually slow amid an expected ease in shelter inflation.

The Bank of Canada cut its key interest rate by 25bps to 3% in its January 2025 decision, as markets expected, to mark 200bps in rate cuts since the start of the cutting cycle in June 2024. In the meantime, the central bank also announced the end of quantitative tightening, and will restart asset purchases in early March to support liquidity and traction of economic activity. The Governing Council noted that CPI inflation converged to the 2% mark in recent months and is expected to remain close to the target in the upcoming two years, as underlying price growth continues to slow. In turn, the council also flagged concerns that tariffs from the US would bring tests to Canada's economic recovery, hampering key sources of demand for domestic goods and services. Still, the BoC expects GDP growth to strengthen in the year, projecting an expansion of 1.8% in the two upcoming years following expectations of a 1.3% growth in 2024, according to the new Monetary Policy Report.