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Canada: Bank of Canada keeps rates steady in April
Latest bank decision: At its meeting on 16 April, the Bank of Canada kept its target for the overnight rate at 2.75%, following 225 basis points of rate cuts since mid-2024.
External uncertainty underpins hold: The decision to keep monetary policy on hold was driven by a desire the assess the impact of past rate cuts, in a context of extremely elevated uncertainty surrounding the GDP and inflation outlooks due to the trade conflict with the U.S. Uncertainty was so high that the Bank presented two different economic outlooks, each underpinned by different assumptions surrounding U.S. tariffs; one outlook saw the economy flatlining in H1 before rebounding, while the other forecast a recession.
Rate cuts to resume: The Bank reiterated that monetary policy would not be able to offset the economic impact of a trade war and must remain focused on tackling inflation; this hints that the Bank’s response to further tariffs may not be large interest rate cuts. Most panelists see more monetary easing this year, of between 25 and 125 basis points, though several panelists expect rates to remain unchanged through end-2025.
Panelist insight: On the outlook, TD Economics’ James Orlando said:
“Market pricing for a cut in June jumped [on the day of the Bank’s meeting], with about 50 bps in cuts expected over the remainder of 2025. This makes sense to us. Canada may have received a lower effective tariff rate than other countries, but the damage has already been done. Canada’s economy has started to show signs of weakness, which we think will continue over the coming months.”
