BoC holds rate steady

General Kaveh Seyedsagha 11 Jun

The Bank of Canada has stayed on the sidelines for its second rate setting in a row, so Canadians hoping for some interest rate relief are going to have to wait a little longer.
The central bank’s trendsetting Policy Rate remains at 2.75%.
In the comments that came with the rate hold Bank Governor Tiff Macklem noted that the Canadian economy is “softer, but not sharply weaker.”  The Bank points out that the labour market is pulling back, particularly in trade-intensive sectors like manufacturing and wholesale.  The unemployment rate rose to 7.0% in May as First National bank reports.
Inflation data remains mixed.  Headline inflation dipped to 1.7% in April but that was largely due to the elimination of the federal carbon tax.  Measures of core inflation, which the Bank prefers to monitor, continue to increase and have risen above 3.0%, which is the top of the Bank’s target range.  As well, business and consumer confidence is slipping, with growing expectations that inflation will worsen.
Inflation fears, and the overall economic jitters that are being felt everywhere, are being blamed on the continuing uncertainty about U.S. tariffs and trade policy.  The erratic behaviour in Washington appears to have the Bank repositioning itself to respond to changes rather than trying to act as a guide through the economy.
“Faced with unusual uncertainty, [the] Governing Council is proceeding carefully, with particular attention to the risks.  This means we are being less forward-looking than usual,” Macklem said.
The Bank of Canada’s next interest rate announcement is set for July 30

GDP and interest rates

General Kaveh Seyedsagha 3 Jun

Canada’s gross domestic product posted better than expected growth in the first three months of this year.  GDP, which is the total value of all goods and services produced by the economy, increased by an annualized rate of 2.2% in the first quarter, up from 1.7% for the same period a year ago.  Analysts had been forecasting a 1.7% increase as First National reports.

Q1 GDP was up 0.5% compared to Q4 of 2024.

The figures from Statistics Canada suggest the economy is holding its own, but many experts are warning that the numbers may be misleading.  They say businesses and industries likely boosted production in an effort to “front run” wide-ranging tariffs threatened by the United States.  The U.S. president announced sweeping, global tariffs on April 2, which he dubbed “Liberation Day”. 

Now that the penalties are in place, production is expected to decline and higher prices caused by the tariffs will likely supress consumption.  GDP growth for the rest of the year is expected to slow and could even turn negative, raising the possibility of a technical recession.

For the time being, though, first quarter GDP growth, an increase in unemployment and a bump in inflation give the Bank of Canada all the reasons it needs to hold off on any further interest rate moves.  Canadians hoping to see a cut may have to wait until later in the year.  Many market watchers are forecasting at least two more rate cuts in 2025. 

The next interest rate setting is scheduled for June 4.