The Bank of Canada’s next rate announcement is Wednesday, with most market watchers expecting the bank to hold its overnight rate at 2.75%, despite annualized GDP growth coming in at an unexpected 2.2% in the first quarter of 2025. “Canada’s economy is strong enough for the Bank of Canada to remain on hold next Wednesday, alongside other reasons for doing so. Our longstanding call remains no rate change,” wrote Derek Holt, vice-president and head of Capital Markets Economics at Scotiabank, adding the GDP growth was a half percentage point higher than expected, “with the caveat that the prior quarter’s 2.1% growth was revised to be a half-point weaker than the previously understood pace of 2.6%.” “The details were not great, but not terrible either. Inventories added 1.4 percentage points to Q1 GDP growth as companies stockpiled in the face of the threat of tariffs to supply chains.” Penelope Graham of Ratehub.ca also believes the bank will hold. “The Bank of Canada is most likely to hold its overnight lending rate at 2.75% in next week’s announcement, largely due to the emergence of rising core inflation in the latest April Consumer Price Index Report,” says Graham. “While the headline number is below the central bank’s 2% target, temporary drops in gas prices have masked persistent increases in other spending categories.” ."Given the latest GDP report was stronger than expected -- even if economic resilience is expected to be temporary -- the bank is all the more likely to hold off on providing stimulus for now." Add RBC economists Nathan Janzen and Abbey Xu to the hold list. “The Bank of Canada's interest rate decision next week will still be a close call, but with economic data holding up better than feared, and inflation in April surprising broadly on the upside once controlling for the removal of the consumer carbon tax from energy products, a second consecutive hold on the overnight rate looks more likely than a cut at this stage,” wrote Janzen and Xu. In a note, BMO’s Chief Economist and Director of Economics, Douglas Porter wrote, “The Canadian economy looks to have held up reasonably well in the opening months of the trade war, and even the most recent (estimate) for April suggests growth is weathering the trade storm.” .Canadian Mortgage Trends (CMT) reports Economists Warren Lovely and Noah Black with National Bank highlight an unsung driver of GDP strength: social security. “While the federal government posted a $62-billion deficit over the past four quarters — equivalent to 2% of GDP — Canada’s public pension programs (CPP/QPP), “delivered a seasonally adjusted surplus (national accounts basis) for a 103rd straight quarter,” Lovely and Black wrote. “They describe this surplus as a “fiscal lynchpin” for Canada, helping to offset gross debt and bolster financial reserves across government sectors,” says CMT. “By their estimate, Canada now holds general government financial assets equivalent to 100% of GDP, thanks in no small part to consistent contributions from social security.”
