Bank of Canada Keeps Interest Rate Reduction on Hold – Currency Thoughts

Bank of Canada Keeps Interest Rate Reduction on Hold

June 4, 2025

As many analysts were expecting, Canada’s policy interest rate was left unchanged at 2.75% today. Officials had also paused policy easing at the previous review in April, interrupting a string of rate cuts begun in June 2024 from a cyclical high of 5.0% maintained since July 2023. Canadian consumer price inflation had crested in mid-2022 at 8.1% and dropped subsequently to as low as 1.6% at the end of last summer. Over the 12 months to April, consumer prices rose at a sub-target 1.7%, but core inflation of 2.5% was up from a 1.5% low-point touched last August. Domestic economic developments accounted for only a part of why the central bank’s governing council decided not to cut rates today. The more pressing issue expressed in the released statement involved a leap in uncertainty unleashed by the U.S. actions on tariffs.

With uncertainty about US 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.

Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Bank of Canada

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