Bank Of Canada Holds Interest Rate For First Time In A Year

On Wednesday morning, the Bank of Canada (BoC) announced an interest rate hold for their April decision — the third of 2025 — keeping the policy rate steady at 2.75%. This marks the first rate pause since April 2024, and follows a 25-basis-point cut from mid-March.

“Inflation was 2.3% in March, lower than in February but still higher than 1.8% at the time of the January MPR. The higher inflation in the last couple of months reflects some rebound in goods price inflation and the end of the temporary suspension of the GST/HSt,” the Bank said in a statement.

“Starting in April, CPI inflation will be pulled down for one year by the removal of the consumer carbon tax. Lower global oil prices will also dampen inflation in the near term. However, we expect tariffs and supply chain disruptions to push up some prices. How much upward pressure this puts on inflation will depend on the evolution of tariffs and how quickly businesses pass on higher costs to consumers. Short-term inflation expectations have moved up, as businesses and consumers anticipate higher costs from trade conflict and supply disruptions. Longer term inflation expectations are little changed.”

Leading up to today’s announcement, economists with Canada’s ‘Big Five’ banks were torn on whether the central bank would hold or cut. The consensus was that there was ample reason to go either way.

Economists with RBC were taking a similar stance as they did prior to last month’s announcement, with economists Nathan Janzen and Abbey Xu writing in an April 11 note that this week’s decision “will be another close call for policymakers.” That being said, they were leaning towards a quarter-point cut as an “insurance” against escalating US tariff risks.

“Minutes from the last BoC meeting largely confirmed that the central bank would have foregone a cut to the overnight rate in March if not for heightened trade risks. We continue to think that fiscal policy is better positioned to provide the kind of timely, targeted, and temporary support needed for the economy as needed than changes in interest rates,” they said.

Janzen and Xu further pointed to March’s employment data, which showed a job loss of 33,000 and a rise in the unemployment rate to 6.7%, and the recent sluggishness in the housing market as reasons why the Bank would opt to cut.

At CIBC, economists were hopeful for a cut, while also acknowledging that the central bank was just as likely to pause.

“The astronomical tariffs that the US put into effect presented a clear and present danger of a global recession, so most investors saw plenty of reason for Canada’s central bank to provide further rate relief. But then those same investors decided that Trump’s decision to ‘pause’ those tariffs at 10% will bring a matching pause in rate cuts from the Bank of Canada,” wrote Economist Avery Shenfeld in a recent report.

Mind you, Trump’s 10% pause is set to end after 90 days, at which point tariffs could be back in effect in full force, as was the case with Canadian-made autos. “The risk that happens with reciprocal tariffs, and the existing sectoral tariffs, leaves substantial uncertainty, a business sector that is freezing capital spending decisions while it waits for clarity, and diminished confidence for both businesses and households in Canada,” Shenfeld said. “Clear downside risks to Canadian growth remain.”

“Governing Council will proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve,” the BoC's Wednesday's statement also said.

“Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians.”

The next interest rate decision is scheduled for Wednesday, June 4. A full 2025 schedule can be found here.