Bank of Canada holds interest rate amid tariff unpredictability

The Bank of Canada will hold the key interest rate amid tariff turmoil.

On Wednesday morning, the bank announced it will hold its target for the overnight rate at 2.75 per cent.

The major shift in direction of U.S. trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations, the Bank of Canada said in its announcement.

This uncertainty makes it “unusually challenging” to project growth and inflation in Canada and globally, the bank said.

Global economic growth was solid in late 2024 and inflation has been easing towards central bank targets, the announcement continued.

“However, tariffs and uncertainty have weakened the outlook,” the bank said in the announcement. “In the United States, the economy is showing signs of slowing amid rising policy uncertainty and rapidly deteriorating sentiment, while inflation expectations have risen.”

The tariff announcements have led to extreme market volatility. Oil prices have declined substantially since January, mainly reflecting weaker prospects for global growth. Canada’s exchange rate has recently appreciated as a result of broad US dollar weakness.

“In Canada, the economy is slowing as tariff announcements and uncertainty pull down consumer and business confidence,” the bank said.

People seemed to have spent less in the first quarter of 2025.

Inflation was 2.3 per cent in March, lower than in February but still higher than 1.8 per cent at the time of the January Monetary Policy Report.

The Bank of Canada’s governing council 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.

“Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. This means we will support economic growth while ensuring that inflation remains well controlled,” the bank said in the report.

The council’s 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 bank said.

The next scheduled date for announcing the overnight rate target is June 4.

See the full Bank of Canada release here.