Canada: Bank of Canada keeps rates steady in June
Latest bank decision: At its meeting on 4 June, the Bank of Canada kept its target for the overnight rate at 2.75%, following 225 basis points of rate cuts since mid-2024.
External uncertainty underpins hold: The decision to keep monetary policy on hold was driven by a desire the assess the impact of past rate cuts, in a context of extremely elevated uncertainty surrounding the GDP and inflation outlooks due to the trade conflict with the U.S. Moreover, the Bank commented that in April core inflation rose and headline inflation was higher than expected once stripping out tax changes, precluding a rate cut.
Rate cuts likely to resume: The Bank’s forward guidance was open-ended in light of the uncertain outlook. Most panelists see more monetary easing this year, of between 25 and 100 basis points, though several panelists expect rates to remain unchanged through end-2025.
Panelist insight: On the outlook, TD Economics’ Leslie Preston said:
“members of Governing Council thought there could be a need for a reduction in the policy rate if the economy weakens and inflation is contained. But, that the Bank is being less forward looking than usual given the high degree of uncertainty on what the tariff picture looks like. We expect that barring a trade negotiation miracle with the Trump administration, Canada’s economy is likely to tip into recession this year, and more interest rate cuts will be required.”
Desjardins’ Randall Bartlett said:
“What the Governing Council does know right now is that inflation is too high for their comfort. And given that slower growth resulting from trade tensions will take time to feed into underlying inflation, they opted to keep the overnight rate unchanged in June. We continue to expect that the BoC will cut rates another 75 basis points this year.”