The Bank of Canada’s decision to hold its benchmark interest rate steady at 2.75% may have disappointed borrowers hoping for some relief, but it was the right move—for now. With inflation still acting erratically and U.S. trade policy throwing curveballs, Governor Tiff Macklem and his team had little choice but to keep their powder dry.
Let’s be clear: the central bank isn’t being indecisive; it’s being patient. And in a world of economic uncertainty, patience can be a virtue.
Yes, April’s consumer price index (CPI) data showed overall inflation cooling—but that was mostly because of the removal of the consumer carbon tax. Once you strip out the more volatile elements like energy and food, what’s left—core inflation—actually ticked up. That’s a red flag. These underlying numbers are the ones the Bank of Canada takes seriously when making monetary policy decisions. And with all their preferred inflation measures rising, the Bank’s caution is justified.
It’s tempting to hope for a rate cut, especially if you’re a homeowner with a variable-rate mortgage or a small business owner juggling rising costs. But rushing into a cut while core inflation is still firm could be a costly mistake. It’s like opening an umbrella in a drizzle and getting caught in a storm minutes later.
Then there’s the elephant in the room: U.S. tariffs. The unpredictable and escalating trade tensions driven by the Trump administration are not just a political spectacle—they’re directly impacting Canada’s economy. Businesses are struggling to absorb rising costs without alienating customers with price hikes. The margins are razor-thin, and the longer the trade war drags on, the more damage it will do.
Macklem acknowledged this, pointing out that tariffs create a unique economic cocktail: one part inflationary pressure from rising costs, one part deflationary pressure from weakened demand. It’s a no-win situation, and the Bank is right to wait for more clarity before making its next move.
Still, there’s a glimmer of hope on the horizon. Two more CPI reports and two labour market updates are on the docket before the next interest rate decision on July 30. If those reports show inflation cooling and job growth stalling, a rate cut could very well be on the table.
Economists like Doug Porter from BMO and Andrew Grantham from CIBC are already leaning toward a 25 basis point cut in July—assuming the data cooperates. But that’s the key word: assuming. And until those numbers are in, guessing would be gambling.
For now, the Bank of Canada is playing it smart. Holding the rate steady gives them the flexibility to act decisively in July—either to provide relief or to stay the course if inflation proves sticky.
For households and businesses alike, the waiting game is tough. But in a volatile global economy, it’s often better to be late than to be wrong.
