The Bank of Canada announced it is holding its target for the overnight interest rate at 2.75%, citing uncertainty related to US tariffs, a softer but not significantly weaker Canadian economy, and firmer-than-expected core inflation data as reasons for its decision.
Economists had widely expected the second consecutive hold.
The central bank emphasized that uncertainty around US trade policy remains high and is monitoring its effects on Canadian exports, business investment, employment, and consumer spending.
“With uncertainty tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts,” it said in a statement.
“We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”
Additionally, GDP growth in the first quarter was 2.2%, slightly higher than forecast, ed by a temporary boost in exports and inventory accumulation. However, the central bank expects the economy to slow in the second quarter, with weaker final domestic demand and declining export momentum.
Headline inflation eased to 1.7% in April due to the removal of the federal consumer carbon tax, but underlying inflation pressures remained, it added. Excluding taxes, inflation was 2.3%, and core measures continued to rise.
Business surveys indicate expectations of ing on higher tariff-related costs to consumers, and household expectations for price increases have persisted.
