The Bank of Canada has elected to leave its influential overnight interest rate unchanged at current levels as it assesses the impact of U.S. import tariffs on the Canadian economy.
The central bank held its trendsetting policy rate at 2.75% following seven consecutive interest rate cuts since June of last year.
The decision to hold interest rates at current levels comes as the neighbouring U.S. continues to shift its tariff policies as they relate to Canada and the wider world.
The pause on interest rates comes as Canada is also in the middle of national elections, with Canadians scheduled to go to the polls on April 28.
A drop in Canada’s inflation rate to an annualized 2.3% in March due largely to lower prices for gasoline at the pumps also enabled the central bank to hit the pause button on rate cuts.
Bank of Canada Governor Tiff Macklem made clear that the disruption from U.S. trade policies was the main reason for the decision to hold interest rates steady.
“The dramatic protectionist shift in U.S. trade policy and the chaotic delivery have increased uncertainty, roiled financial markets, diminished global growth prospects, and raised inflation expectations,” said Macklem at a press conference held in Ottawa.
The central bank governor added that “considerable uncertainty” tied to the U.S. tariff campaign still exists.
The Bank of Canada also issued a set of economic forecasts alongside its latest rate decision.
In one scenario, it sees the tariffs and threats negotiated away quickly and the Canadian economy stall but escape with limited damage.
The other forecast envisions a more protracted global trade war that sends Canada into an economic recession.
The central bank forecasts inflation in Canada this year in a range of 1.5% to 3%, depending on the ongoing situation with U.S. tariffs.
Governor Macklem noted that tariffs have already hurt business and consumer confidence in Canada, with some manufacturers laying off workers.
Going forward, the Bank of Canada said it would “proceed carefully” in setting future interest rates and will be watching to see how tariffs reduce demand for Canadian exports.
The next decision on interest rates by the Bank of Canada is scheduled for June 4 of this year.
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