Bank of Canada Holds Steady at 2.75% Amid Rising Uncertainty
So, here’s what’s happening with the Bank of Canada right now—on April 16th, they decided to hold their key interest rate steady at 2.75%. Now, that might seem like a calm move, but the context around it is anything but. This decision reflects just how turbulent and unpredictable the economic outlook has become, especially with all the escalating trade tensions—most notably those coming from the U.S.
The BoC didn’t deliver the usual economic forecast this time around. Instead, they laid out two very different scenarios—kind of a "choose your own adventure" situation for the Canadian economy. Why? Because the sheer unpredictability of U.S. trade policy makes traditional forecasting almost impossible. The Bank said outright that the speed and magnitude of these shifts are making it very hard to see what’s coming next.
In the first scenario—the relatively hopeful one—we could see tariffs gradually negotiated away. That would lead to a short-term dip in growth, but a steady rebound over the next few years. Inflation might dip below target briefly, thanks in part to the removal of the consumer carbon tax, but would stabilize again around 2%. GDP growth would hover around 1.6% annually through to 2027. Not great, but manageable.
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Then there’s the more severe scenario: a full-blown trade war that plunges Canada into a recession throughout 2025. In this case, GDP could shrink by over 1% in 2025, inflation could surge past 3% mid-2026 due to tariff pressures, and recovery would be slow, uneven, and painful. Growth would struggle to bounce back, only reaching 1.6% again by 2027—significantly delayed compared to the first path.
Either way, the Bank made it clear: monetary policy isn’t the tool to fix trade uncertainty. Their job is to maintain price stability and support growth as best they can, even while the global environment shifts under our feet. Their message? They’ll tread carefully and keep a close eye on inflation.
Economists, like BMO’s Douglas Porter, are interpreting this cautious tone as a sign that further rate cuts are likely if the uncertainty continues to weigh on economic activity. He basically said it’s not even worth reading too much into every word from the Bank because the outlook can change so fast. And he’s got a point—this isn’t business as usual.
So, what’s next? Most of the Big Six banks are now forecasting the policy rate to dip down to somewhere between 2.00% and 2.25% by the end of 2025. That would mark a shift toward more accommodative policy if growth keeps stalling and inflation remains under control.
Bottom line? The Bank of Canada is standing firm for now, but we’re clearly in a “wait and see” mode. With so many moving parts—global trade disputes, inflation pressures, weakening job markets—there’s no playbook for what comes next. The only certainty is that uncertainty itself is now a major factor in Canada’s economic future.
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