Bank of Canada keeps interest rates steady after seven continuous cuts

The Bank of Canada paused its recent streak of interest rate cuts , holding the benchmark rate at 2.75% on Wednesday. The decision came after seven consecutive reductions since summer, aimed at lowering borrowing costs.

However, rising global trade tensions have forced a more cautious approach.

The central bank attributed the decision to “major shift in direction of US trade policy and the unpredictability of tariffs” explaining that these developments have “increased uncertainty, diminished prospects for economic growth, and raised inflation expectations.”

The Canadian economy had started the year on a strong note, after ending the previous year with robust growth and inflation easing towards the bank’s 2 percent target. However, fresh waves of tariffs and erratic policy signals from US President Donald Trump have cast a shadow over the global economic outlook.

While Canada was spared the most recent batch of tariffs announced on 2 April, it continues to face levies on steel, aluminium, some car models, and goods deemed non-compliant with the North American free trade pact. Trump has also threatened to expand the list to include lumber, semiconductors and pharmaceutical products.

“A lot has happened since our March decision five weeks ago. But the future is no clearer,” said Bank of Canada governor Tiff Macklem. “We still do not know what tariffs will be imposed, whether they'll be reduced or escalated, or how long all of this will last.”

He added that the central bank would wait for more clarity before considering its next move in June.

Economists are split on what comes next. Avery Shenfeld of CIBC economics warned that if the Canadian economy shows signs of slowing in the coming months, the central bank will come under increasing pressure to cut rates again. Meanwhile, Royce Mendes of Desjardins struck a more hopeful tone, suggesting there is “some momentum behind the move towards better relations between the US and Canada.”

Still, the Bank of Canada gave a dull outlook for the risks ahead, warning of a potential recession and surging prices, in case the trade war with the US continues. It also pointed to weakened financial markets, falling oil prices, and a stronger Canadian dollar driven by a broadly weaker US currency.

The bank highlighted that consumer and business confidence dipped, dragging down spending, investment, and hiring. In the short term, it expects prices to rise due to supply disruptions and higher costs, but emphasised the need to stay the course.

“Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war,” the bank said. “What it can and must do is maintain price stability for Canadians.”