Bank of Canada Holds Rate at 2.75% Amid 1.5% GDP Decline

The Bank of Canada has announced that it will maintain its benchmark interest rate at the current level of 2.75%. This decision comes as the Canadian economy faces a mix of challenges and opportunities. The first quarter of the year saw a robust economic growth driven by early exports aimed at mitigating the impact of tariffs. However, the second quarter is expected to see a decline in the Gross Domestic Product (GDP) by approximately 1.5%. This contraction is primarily due to a sharp reversal in exports following the early shipments and a decrease in demand for Canadian goods from the United States, exacerbated by tariff threats.

The Bank of Canada highlighted that while recent weeks have seen some clarity in U.S. trade policies, the overall trade actions remain unpredictable. The ongoing trade negotiations are fraught with uncertainties, and new industry-specific tariff threats persist. The Bank of Canada anticipates that under the current tariff conditions, the Canadian economy will see a modest recovery in the second half of the year, with growth rates stabilizing around 1%. However, economic weakness is expected to persist until 2026. If tariff issues are resolved, the economic rebound could be more rapid. Conversely, if tariff problems escalate, the economy could continue to contract throughout the year.

The Bank of Canada had previously lowered the benchmark interest rate by 25 basis points to 2.75% in March. This rate has been maintained unchanged in April and June. The decision to keep the rate steady is in line with market expectations and reflects the Bank's cautious approach to managing economic uncertainties. The Bank of Canada has indicated that it will continue to monitor economic indicators closely and is prepared to adjust monetary policy if necessary. The central bank's stance underscores its commitment to supporting economic stability amidst global trade tensions and domestic economic challenges.