Bank of Canada Holds Interest Rate Steady Amid Tariff Uncertainty

Central Bank Pauses Rate Cuts as Global Trade Tensions Rise

The Bank of Canada has decided to keep its key interest rate unchanged at 2.75%, marking a pause after a series of rate reductions. The move reflects growing caution as the global economy faces renewed pressure from U.S. trade tariffs and heightened market volatility.

Governor Tiff Macklem acknowledged the complexity of the current environment, calling it a “once-in-a-century” economic shock. The introduction of new tariffs by the United States has introduced unpredictability that makes conventional forecasting more difficult, influencing the central bank’s cautious tone.

Two Possible Paths: Temporary Weakness or Prolonged Recession

In its latest Monetary Policy Report, the Bank of Canada presented two potential outcomes for the Canadian economy. One scenario assumes tariffs remain limited, resulting in a modest economic slowdown with inflation hovering around the 2% target. The second, more severe scenario envisions a long-lasting trade conflict, potentially pushing the country into recession and driving inflation temporarily above 3%.

Dollar Strengthens, Markets Eye June Rate Decision

Following the rate announcement, the Canadian dollar strengthened against the U.S. dollar, climbing to 1.3875. This uptick is seen as a response to both the BoC’s decision and broader currency market trends.

Looking ahead, market watchers are split on what the central bank will do next. Some expect a rate cut at the next policy meeting on June 4, while others believe the BoC will remain on hold as it continues to monitor evolving trade developments and inflation trends.