Canada: Bank of Canada holds rates in April
Latest bank decision: At its meeting on 29 April, the Bank of Canada held the target for the overnight rate at 2.25%, following 100 basis points of cuts last year.
Bank opts for wait-and-see approach: The Bank likely wanted to judge the effect of the 275 basis points of interest rate cuts since mid-2024 before countenancing any further rate changes. Elevated international uncertainty linked to conflict in the Middle East was another reason to stay on hold. A combination of an economy that is expected to keep growing plus inflation well within the Bank’s 1.0–3.0% target range gave the Bank the leeway to stay put.
Monetary policy likely to be unchanged ahead: Our Consensus is for rates to be broadly unchanged from now to end-2026, though one panelist sees a cut and a few see hikes. Much will depend on future changes in U.S. trade policy and their impact on Canadian GDP and inflation, as well as how conflict in the Middle East affects energy prices ahead.
Panelist insight: On the outlook, Desjardins economists said:
“It’s a tough time to be a central banker. Heightened uncertainty from both the evolving conflict in the Middle East External link. and US trade policy External link. mean the Canadian economy is being hit by simultaneous inflationary and disinflationary shocks. And looking ahead, the potential risks to both remain high and potential outcomes extremely uncertain. Given the two-sided risks to the inflation outlook, the Bank of Canada appears comfortable leaving rates on hold, unless oil prices remain higher for longer. We remain of the view that the Bank of Canada will keep the policy rate unchanged for the rest of the year.”