Bank of Canada holds its rate, citing tariff turmoil

Bank of Canada
Bank of CanadaBoC photo
Published on

The Bank of Canada held its overnight rate at 2.75% on Wednesday, citing the economic uncertainties generated by the on-again, off-again US tariffs. 

In a statement, the bank’s governors said, “The major shift in direction of US trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations.” 

“Pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada and globally. Instead, the April Monetary Policy Report (MPR) presents two scenarios that explore different paths for US trade policy.” 

The first scenario deals with a high rate of uncertainty due to the tariffs, which would see growth in Canada weaken temporarily, with inflation holding around the bank’s target of 2% (it is currently at 2.3%). 

“In the second scenario, a protracted trade war causes Canada’s economy to fall into recession this year and inflation rises temporarily above 3% next year,” reads the bank’s statement. “Many other trade policy scenarios are possible. There is also an unusual degree of uncertainty about the economic outcomes within any scenario, since the magnitude and speed of the shift in US trade policy are unprecedented.” 

“Financial markets have been roiled by serial tariff announcements, postponements and continued threats of escalation. This extreme market volatility is adding to uncertainty. Oil prices have declined substantially since January, mainly reflecting weaker prospects for global growth. Canada’s exchange rate has recently appreciated as a result of broad US dollar weakness.” 

The Canadian economy has slowed as the tariff uncertainty is dimming consumer and business confidence, with rates of consumption, residential investment and business spending all slowed in the first quarter fo 2025. 

“Trade tensions are also disrupting recovery in the labour market,” said the bank. “Employment declined in March and businesses are reporting plans to slow their hiring. Wage growth continues to show signs of moderation.” 

More to come as markets react. 

Related Stories

No stories found.
logo
Western Standard
www.westernstandard.news