The Bank of Canada’s Cautious Pause

Interest Rates Held Steady Amid Trade Storm Clouds

The Decision

For the second straight meeting, the Bank of Canada (BoC) has kept its key interest rate at 2.75%. This "wait-and-see" move was widely expected but underscores the bank’s tricky balancing act in turbulent times.

Why Hold Steady? Two Big Reasons

Trade Turmoil is the first hurdle. U.S. threats to hike tariffs on Canadian goods (like steel and aluminum) have created "unusual uncertainty." The BoC admits it can’t predict whether trade tensions will ease or explode into a full-blown trade war. Acting now risks making a mistake.

Stubborn Inflation is the second concern. While overall inflation dipped slightly, the BoC’s preferred measures (core inflation, which ignores volatile prices) actually rose above 3%, well beyond the bank’s comfort zone. Cutting rates could push prices even higher.

The Economic Tightrope

Canada’s economy sends mixed signals. On one hand, it’s slowing down: Recent growth came mostly from businesses stockpiling goods ahead of feared tariffs, while spending by Canadians has stalled. Job losses are rising, and the BoC expects the second quarter to be "considerably weaker."

This puts the bank in a bind. Normally, a slowing economy would call for rate cuts to encourage borrowing and spending. But with underlying inflation still too hot, cutting rates could fuel price rises. With trade chaos muddying the outlook, the BoC chose to pause and watch.

What’s Next?

The BoC is firmly in wait-and-see mode. It hinted that rate cuts could come later this year—but only if the economy weakens sharply and inflation cools down. The wildcard remains U.S. trade decisions: if tariffs escalate, a Canadian recession becomes likely, forcing the BoC to cut rates more aggressively.