The Bank of Canada on Wednesday kept its key policy rate unchanged at 2.75%, marking its first pause after seven straight reductions.
According to a statement released by the bank on Wednesday, this decision was made amid heightened economic uncertainty resulting from major shifts in US trade policy and concerns about inflation.
The central bank also stated that uncertainty surrounding US tariffs has made it impossible to provide standard economic forecasts at this time.
Two scenarios for economic growth
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The MPR (Monetary Policy Report) also includes two scenarios that represent two different paths the US trade policy could take and the impact it could have on Canadian economic health.
This initial scenario introduces high uncertainty but limits the scope of tariffs.
In this scenario, Canadian growth slows in the near term, but inflation stays near the Bank’s 2% target.
In this case, light tariffs could save Canada from more severe economic pain.
The other scenario, by contrast, envisions a lengthy trade war sending Canada into recession.
That would have inflation blowing past 3% next year.
This split is symptomatic of a broader fact—the ambiguity surrounding the outlook for trade policy, together with the remarkable velocity of changes in policy in the US, renders economic forecasting particularly challenging.
Global economic context
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The global economic environment is complicated, with hints of strong growth in late 2024 giving way to new risks.
As the US economy slows and policy uncertainty rises, the mood has significantly deteriorated.
The Eurozone’s growth rate is moderate at the start of 2025, owing mostly to persistent setbacks in the manufacturing sector.
China performed well at the end of 2024, but recent indicators suggest a minor decline.
The uncertainty created by trade policy pronouncements has caused enormous volatility in financial markets, complicating investment decisions and limiting more traditional sources of economic development, such as consumption and corporate investment.
Canada’s economic slowdown
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In Canada, economic indicators point to a significant decline. Consumer and corporate confidence appear to be rattled as the effects of tariffs and trade concerns become more apparent.
Key sectors like as consumption, home investment, and business expenditure all showed symptoms of weakening in the first quarter of the year.
Furthermore, trade tensions have had a negative influence on the job market, with employment numbers falling in March and businesses announcing plans to reduce hiring activity.
Wage growth, a key indicator of economic vigour, has also slowed recently, complicating the economic picture.
Pressures persist, with inflation reaching 2.3% in March, slightly lower than in February but still higher than 1.8% at the time of the January MPR.
Navigating inflation dynamics
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The Bank of Canada will focus on inflation dynamics as it moves forward. In April, the consumer carbon tax will be removed, which is likely to reduce CPI inflation slightly.
The Bank of Canada’s stalemate on interest rates, along with trade uncertainties, diverse inflation expectations, and deteriorating economic indicators, creates a fragmented policy environment.
With firms and consumers struggling to adapt to the unstable macroeconomy, the long-term ramifications for economic development are unclear.
Market participants expect volatility in the coming months as improvements occur quickly.
Overall, the coming months will be essential for the global economy and the new trade policy.
https://invezz.com/news/2025/04/16/bank-of-canada-holds-interest-rate-at-2-75-amid-global-trade-uncertainty/
