Bank of Canada Holds Policy Rate, Ending Seven Consecutive Rate Cuts

The Bank of Canada held its target for the overnight lending rate at 2.75%. Financial markets were split on the Bank’s move in the lead-up to the decision which was announced on Wednesday, April 16, 2025, marking the first time the Bank has not lowered rates since April 10, 2024.

The Bank noted the uncertainty and unpredictability of tariffs from the United States are front and centre when considering the difficulty in projecting economic growth and inflation. The Bank did, however, present two scenarios in its April Monetary Policy Report (MPR) examining different paths for U.S. trade policy.

Under the first scenario where uncertainty remains high but tariffs are limited, the Bank sees Canadian Gross Domestic Product (GDP) weakening temporarily while inflation remains around its 2% target. 

In the second scenario, under a protracted trade war, Canada’s economy would fall into a recession in 2025 and inflation would rise above 3% in 2026. The Bank mentioned there were other possible scenarios and there was a high degree of uncertainty regarding any forecasts, “since the magnitude and speed of the shift in U.S. trade policy are unprecedented.”

The Bank observed that Canada’s economy is slowing and consumer and business confidence are lower due to uncertainty surrounding tariff announcements and implementation. Consumer and business spending, housing activity, and employment are also weakened.

In its inflation outlook the Bank noted that recent increases in the Consumer Price Index (CPI) were a result of the expiry of the GST/HST holiday. The CPI will be pulled downward in April for one year due to the removal of the consumer carbon tax. According to the Bank, “short-term inflation expectations have moved up, as businesses and consumers anticipate higher costs from the ongoing trade conflict and supply disruptions,” while, “longer term inflation expectations are little changed.”

In its closing notes, the Bank stated that its focus would remain on price stability for Canadians, paying particular attention to the following risks and uncertainties:

• the extent to which higher tariffs reduce demand for Canadian exports;
• how much this impacts 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 Bank will also have to manage a delicate balance on the inflation front, concluding its, “Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”

Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”

The Bank of Canada

The Bank of Canada will make its next scheduled interest rate announcement on June 4, 2025, and publish its full outlook for the economy and inflation in its next Monetary Policy Report on July 30, 2025.