Canada's Central Bank Holds Rates at 2.75% Amid US Trade Tensions

Canada's central bank, led by Governor Tiff Macklem, has maintained its policy interest rate at 2.75% for the second consecutive meeting. This decision aligns with market expectations and the majority of economists surveyed. The bank's decision to hold rates steady comes as it continues to monitor the economic impact of trade tensions with the United States, which it has identified as the "largest adverse factor" facing the Canadian economy. These tensions have significantly weakened exports and increased uncertainty for both consumers and businesses.

Despite the economic headwinds, the bank noted that the first quarter of the year saw stronger-than-expected economic performance. Additionally, core inflation measures have shown recent increases, indicating that price pressures remain contained. In a statement, the bank said, "Given the high level of uncertainty related to U.S. tariffs, the Canadian economy is showing signs of weakness but has not significantly deteriorated. Meanwhile, recent inflation data has been surprisingly robust, leading the Governing Council to maintain the policy interest rate unchanged while gathering more information on the impact of U.S. trade policies."

Macklem emphasized that while the bank has reached a "clear consensus" to pause and await more information on the trade dispute, it has provided limited guidance on the potential direction of borrowing costs. He stated, "Overall, members agree that if the economy weakens under the continued backdrop of tariffs and uncertainty, and inflationary pressures remain controlled, it may be necessary to lower the policy interest rate." Macklem also noted that views on the future path of interest rates are "diverse."

The bank's communication suggests a willingness to wait for clearer signals on the progress of trade disputes. Meanwhile, policymakers are actively discussing the possibility of resuming monetary easing if the economy deteriorates and inflation remains manageable. The bank's cautious approach reflects its commitment to supporting economic stability while navigating the complexities of international trade relations.