Bank of Canada Holds Interest Rate Steady at 2.75% Amid Trade Tensions with U.S.

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The Bank of Canada (BoC) held its key interest rate steady at 2.75% on Wednesday, pausing a series of rate cuts that began in mid-2024.

The decision comes amid growing economic uncertainty sparked by escalating trade tensions between Canada and the United States.

BoC Governor Tiff Macklem cited a cautious approach to monetary policy as the central bank assesses the impact of both moderating inflation and global trade disruptions.

In its quarterly Monetary Policy Report, the BoC noted that while inflation has slowed, external risks—especially related to recent U.S. trade measures—pose fresh challenges to Canada’s economic outlook.

Cooling Inflation Provides Breathing Room

Canada’s inflation rate dipped to 2.3% in March, down from 2.6% in February. Lower gasoline prices and a seasonal decline in travel costs contributed significantly to the slowdown.

This marks the lowest inflation reading since early 2023 and suggests that earlier rate cuts are beginning to work their way through the economy.

“The disinflation trend is encouraging, but the global environment remains volatile,” said Macklem in a press conference following the rate announcement. “We are closely watching how trade developments unfold, especially those involving our largest trading partner.”

Trade War Adds Pressure to Policy Decisions

In recent weeks, the U.S. administration has announced a series of tariffs targeting Canadian aluminum, pharmaceuticals, and select technology products. Canadian exporters are bracing for a sharp decline in cross-border shipments, while domestic manufacturers face rising uncertainty.

Economists warn that a prolonged trade standoff could dampen investment and slow GDP growth, which the BoC now projects at 1.4% for 2025—down from its previous estimate of 1.8%.

“Policy decisions are becoming more complex in the face of geopolitical frictions,” said Avery Chen, senior economist at Toronto-based Dominion Analytics. “Today’s hold is a signal that the BoC is prioritizing stability over aggressive easing.”

Future Cuts Still on the Table

Despite today’s pause, market watchers still anticipate further rate cuts later in the year. Analysts forecast as many as two additional 25-basis-point reductions before the end of 2025, particularly if inflation continues to trend lower or if the trade situation worsens.

The Canadian dollar, which recently surged to a five-month high, pulled back slightly following the BoC’s decision, reflecting market expectations of a longer wait for the next cut.

What’s Next?

As Canada navigates a shifting economic landscape, all eyes will remain on the interplay between monetary policy and international trade.

The BoC reiterated its commitment to data-driven decision-making and left the door open to both easing and tightening, depending on how global and domestic conditions evolve.

For now, the central bank is signaling patience—with its next scheduled policy announcement set for June 4, 2025.

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