The Bank of Canada kept its interest rate at 2.75%, as expected, for the second consecutive meeting at its recently concluded meeting. The bank noted that despite the reduction in various tariffs since the April monetary policy report and the ongoing trade negotiations, tariffs remain significantly higher than at the beginning of the year, the threat of new trade measures remains, and uncertainty remains high.
Economic growth in Canada was 2.2% in the first quarter, slightly above the bank’s forecast. The unemployment rate rose to 6.9%, but growth is expected to be weaker in the second quarter as strong exports and trade are offset by weak domestic demand.
Inflation in Canada was 1.7% in April, lower than in March. This slowdown in inflation reflects the removal of the carbon tax on consumers by 0.6%. Excluding taxes, inflation was 2.3% in April, slightly above expectations. Recent surveys indicate that households expect tariffs to lead to higher prices. With continued uncertainty surrounding tariffs, the Canadian economy showing signs of weakness, albeit not severe, and recent inflation figures showing some stability, the Bank decided to maintain interest rates. We will continue to assess the timing and strength of the pressures and the impact of tariff risks on Canadian demand and exports.