Investing.com -- The Bank of Canada left its key interest rate unchanged at 2.75% on Wednesday, as expected by analysts, amid persistent volatility in global trade and inflation dynamics. The Bank Rate remains at 3%, while the deposit rate was held at 2.70%, signaling policymakers’ measured stance in uncertain economic conditions.
Economic growth domestically surprised slightly to the upside in the first quarter, clocking in at 2.2%, bolstered by front-loaded exports and inventory buildup. However, final domestic demand showed little momentum, and a sharp pullback in housing and government spending dampened broader performance.
BoC Governor Tiff Macklem, in an opening statement at the post-release press conference, said, "Uncertainty remains high. The Canadian economy is softer but not sharply weaker. And we’ve seen some firmness in recent inflation data." "The trade conflict initiated by the United States remains the biggest headwind facing the Canadian economy," the Governor admitted.
CIBC (TSX:CM) economist Avery Shenfeld commented, "July looks more promising for a quarter point ease if, as we expect, the jobless rate continues to move higher, and inflation in items not subject to tariff pressures eases off a bit... We look for final quarter point reduction, to 2.25% in September."
Global headwinds continue to swirl, with tariff uncertainty dominating sentiment and impacting trade flows. Although the U.S. and China have eased off the most extreme measures and resumed negotiations, tariff levels remain elevated and highly susceptible to shifting policy direction.
Canada’s inflation data presented a mixed picture, with headline CPI falling to 1.7% in April, due partly to the removal of the federal carbon tax. Core inflation metrics, excluding volatile items and taxes, showed firmer growth at 2.3%, brushing past Bank expectations and raising concerns about price stickiness.
The Bank noted that inflation risks are balanced on both sides, citing weakening economic activity that could cool prices and firm cost pressures from tariffs that could sustain them. “We 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,” the Governing Council stated.
Labor conditions have added to the caution, particularly in trade-sensitive industries where job losses have reversed prior gains, pushing unemployment to 6.9%. Slowing consumer confidence and declining housing activity also signal a more subdued second quarter ahead.
Policymakers emphasized prudence, underlining sensitivity to external shocks as they continue to monitor critical risks. “Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy,” the Bank noted, highlighting exposure to U.S. tariff decisions and confidence measures.
Despite the subdued tone, the Bank reaffirmed its commitment to stabilizing inflation and maintaining public trust in its policy framework. “We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” the statement concluded.