Toronto 
The Bank of Canada has opted to maintain its target for the overnight interest rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. The decision reflects ongoing global trade uncertainty and mixed signals from both domestic and international economic indicators.
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Here are highlights of Wednesday’s rate decision press release:
Global Economic Impacts:
- US-China trade relations show some de-escalation, but tariffs remain significantly above early 2025 levels.
- Global markets have recovered from April volatility, but are still sensitive to US policy shifts.
- The U.S. economy saw strong domestic demand, though GDP declined due to increased imports.
- European growth has been supported by exports and rising defence spending.
- China’s economy has slowed, and high tariffs have begun to suppress exports to the U.S.
Canadian Economic Developments:
- Q1 GDP growth came in at 2.2%, slightly higher than forecast, aided by early export activity and inventory accumulation.
- Business investment was stronger than expected due to sustained spending on equipment.
- Consumer spending slowed but remained positive, even as consumer confidence declined.
- Housing activity dropped, largely from reduced resale transactions.
- Government spending and employment, especially in trade-exposed sectors, both declined.
- Unemployment rose to 6.9%, reflecting a softening labour market.
Inflation Trends:
- Headline CPI inflation fell to 1.7% in April, influenced by the removal of the federal carbon tax.
- Excluding taxes, core inflation rose to 2.3%, exceeding expectations slightly.
- Businesses reported plans to pass higher costs from tariffs to consumers.
- Surveys show that households expect continued upward pressure on prices.
As a result, the Bank of Canada is keeping its policy rate unchanged amid ongoing uncertainty over U.S. tariffs, a slightly weaker domestic economy, and stronger-than-expected inflation.
The press release reads, “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve.”
The next interest rate decision and Monetary Policy Report will be released on July 30, 2025.
