Bank of Canada Building: By Taxiarchos228, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=11974266
Bank of Canada holds interest rate steady amid global trade uncertainty
The Bank of Canada is holding its key interest rate at 2.75 per cent, citing growing global uncertainty caused by unpredictable U.S. trade policies and tariff threats.
“The major shift in direction of U.S. trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations,” the Bank said in a statement Wednesday.
The central bank’s latest Monetary Policy Report presents two possible scenarios. In one, tariffs remain limited, but uncertainty remains high, leading to a temporary slowdown. In the other, a drawn-out trade war triggers a recession in Canada and inflation temporarily climbs above three per cent next year.
Closer to home, the Canadian economy has already begun to show signs of strain. “Consumption, residential investment and business spending all look to have weakened in the first quarter,” the Bank said, adding that employment declined in March and businesses plan to slow hiring. Wage growth also continues to moderate.
While inflation sat at 2.3 per cent in March, down slightly from February, it remains higher than January’s 1.8 per cent. Inflation is expected to ease in the coming months, pulled down by the removal of the federal carbon tax and lower global oil prices. However, the Bank warns that tariffs and supply chain disruptions could push some prices up.
“Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war,” the Bank said. “What it can and must do is maintain price stability for Canadians.” The Bank added that it will proceed cautiously, aiming to support growth while ensuring inflation remains under control.
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