Bank of Canada holds key interest rate at 2.75%, cites ‘unusual uncertainty’

The Bank of Canada held its key interest rate steady at 2.75 per cent for the second consecutive time, citing ongoing trade uncertainty and an economy that continues to chug along. The decision on Wednesday was in line with financial market expectations, which favoured a hold after recent strong-than-expected economic data. “With uncertainty about U.S. 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 U.S. trade policy and its impacts,” the central bank said in a news release. The Bank of Canada held its key interest rate in April as well, pointing to the same trade uncertainty that contributed to its decision on Wednesday. The central bank is suggesting that economic data since then hasn’t fuelled urgency for rate cuts. The elimination of the consumer carbon price brought down Canada’s inflation rate in April to 1.7 per cent, however underlying price pressures were firmer, with the central bank’s preferred measures of core inflation up that month. Meanwhile, the economy grew at 2.2 per cent in the first quarter, slightly higher than the Bank of Canada forecast as exports increased ahead of tariffs. In his prepared opening remarks, Governor Tiff Macklem says that there was “clear consensus” to hold the policy rate, but that there was a “diversity of views” on the path ahead for interest rates. Open this photo in gallery: Bank of Canada Governor Tiff Macklem at a news conference on May 8.Adrian Wyld/The Canadian Press “On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued U.S. tariffs and uncertainty, and cost pressures on inflation are contained,” Mr. Macklem said. U.S. President Donald Trump’s erratic trade policy has made the central bank’s job particularly challenging, as it tries to maintain price stability while supporting economic growth. Just on Tuesday, Mr. Trump signed an executive order to double tariffs on aluminum and steel imports to 50 per cent, which took effect Wednesday. Canada also continues to face a slew of other tariffs from the United States, though a significant portion of goods cross the border duty-free, due to a carveout for products that are compliant with the North American free trade agreement. Mr. Macklem says in his remarks that faced with “unusual uncertainty,” the governing council is being less “forward-looking” than usual when it comes to its future rate decisions. Economists expect the central bank will have to lower its policy rate at some point this year, noting there are already signs of weakness in the economy due to the U.S. trade war. Those signs are apparent in the labour market, where the unemployment rate rose to 6.9 per cent in April.

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