Bank of Canada Holds Rates Steady In The Face Of Tariff Uncertainty--More Rate Cuts Coming

The Bank of Canada maintained its target for the overnight rate at 2.75% this morning on April 16, 2025.

The governing council noted that the unpredictability of the magnitude and duration of tariffs posed downside risks to growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing. As per the Bank of Canada media release, "Pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada and globally."

The governing council outlined two scenarios in their press release here,  noting other trade policy scenarios are possible.

1. Uncertainty is high but tariffs are limited in scope. Canadian growth weakens temporarily and inflation remains around the 2% target.
2. A protracted trade war causes Canada's economy to fall into recession this year and inflation rises temporarily above 3% next year.

With the unusual degree of uncertainty about the current economic outcomes, riddled by tariff announcements, postponements, and threats, the market volatility is high.

The Governing Council will proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include the extent to which higher tariffs reduce demand for Canadian exports, how much this spills over into business investment, employment, and household spending, how much and how quickly cost increases are passed on to consumer prices, and how inflation expectations evolve.

The Governing Council also maintains its stance on maintaining price stability for Canadians during these uncertain times.

At the time of writing this article, expectations are that the Bank of Canada will resume cutting the policy rate in 25 bps increments until it reaches somewhere between the 2.0%-2.25% mark.

The next scheduled date for announcing the overnight rate target is June 4, 2025.