After a year of steady interest rate cuts that began in April 2024, the Bank of Canada held its key overnight rate at 2.75% for the second meeting in a row on June 4, 2025, signaling a more cautious, wait-and-see approach.

In its latest update, the Bank highlighted ongoing uncertainty around U.S. trade policy. The current U.S. administration continues to raise and lower tariffs—most recently doubling tariffs on steel and aluminum to 50%—with the possibility of further trade actions ahead.

Canada’s economy grew by 2.2% in the first quarter—slightly better than expected—driven mainly by a short-term boost in exports and businesses stockpiling inventory in anticipation of tariffs. However, the Bank expects that momentum to fade in the second quarter, as those temporary factors unwind and domestic demand remains weak.

There are also signs of strain. Consumer confidence has dipped, and the housing market is cooling, with a sharp drop in home resales. The labour market has softened too, particularly in sectors tied to trade, pushing unemployment up to 6.9%.

Inflation, as measured by the Consumer Price Index eased to 1.7% in April, largely due to the removal of the federal consumer carbon tax. Excluding that, inflation rose slightly to 2.3%, above expectations. Business surveys suggest many companies plan to pass rising costs from tariffs on to consumers—indicating more inflation may be on the way.

With mixed signals from the economy, the Bank’s Governing Council chose to hold rates steady while closely monitoring trade developments and their broader impact. Key concerns include the effect of tariffs on exports and employment, how quickly price increases are passed on to consumers, and how inflation expectations evolve.

The Bank also flagged another challenge on the horizon: upcoming COVID-era mortgage renewals, which could strain household budgets as a larger share of income goes toward interest payments.

Despite these uncertainties, the Bank reaffirmed its commitment to maintaining price stability and supporting sustainable economic growth. Its next interest rate decision and updated economic outlook are scheduled for July 30, 2025.