Interest rates in Canada are holding steady for now, with the Bank of Canada’s governor Tiff Macklem describing the “unpredictable” outlook for United States trade policy, and saying that it may be “hard to restore” trust in our neighbors to the south.
Macklem made the remarks at a press conference on Wednesday after the Bank of Canada opted to keep its overnight benchmark at 2.75 per cent, as most economists expected.
“Let’s hope that there’s an agreement between Canada and the United States. Let’s hope it’s a good agreement,” said Macklem speaking to reporters in Ottawa.
“There is a sense that U.S. policy may well remain unpredictable. There is a sense that it’s going to be hard to restore trust. So, yes, I think, some level of uncertainty will continue.“
This marks the third straight monetary policy meeting where rates have held steady after seven straight rate cuts that began in June of 2024 and ended in March of 2025.
The overnight benchmark set by the Bank of Canada dictates the minimum amount that commercial banks and other lenders can charge their customers for loans like a mortgage on a home, or that of a car loan.
So, those Canadians looking to apply for a loan in the near future, or who currently have variable rate loans likely aren’t going to see an improvement in affordability just yet.
“Despite recent decisions to hold, past rate cuts from the Bank of Canada are likely still taking time to support the economy,” says senior economist Claire Fan at the Royal Bank of Canada.
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“But with mortgage rates mostly stabilizing near or above origination back in 2020-2021 origination levels, the effect on households is more like easing off the brakes than pressing on the gas.”
She continued: “Today, the car is in neutral and the outlook is still hazy. Tariffs in place today have been less severe than feared but Canada as one of the largest trade partners to the U.S., remains particularly vulnerable to protectionist U.S. trade policies.”
In its report, the Bank of Canada cited economic “uncertainty” surrounding the current trade war as one of the main themes which led to this decision.
“The outlook for the Canadian economy remains clouded. The global trade conflict continues to evolve,” the report says.
“This trade-related uncertainty has two layers. The first layer is around U.S. trade policy, and the second layer of uncertainty is about how households, businesses and governments will react and adapt to tariffs.”
The Bank of Canada also described its ongoing priority to maintain price stability by keeping inflation within its target range of between one to three per cent for year-over-year price increases.
“Tariffs have had only a limited effect on inflation to date. Household inflation expectations remain elevated, while businesses’ inflation expectations have moderated,” the report says.
“Some businesses, however, report that the shifts in global trade are imposing new costs on their operations.”
Following the initial announcement and report from the Bank of Canada, governor Tiff Macklem at the central bank was asked by reporters about the likelihood of another cut to interest rates this year given the uncertainty surrounding the trade war and tariffs.
“Given the unusual amount of uncertainty, we’re continuing to put more weight on the risks,” said Macklem at the press conference on Wednesday in Ottawa.
“How much are U.S. tariffs impacting our exports? How much is the weakness in exports spilling over into business investment, employment and household spending? How big are those direct costs? How quickly are those getting passed through to consumer prices? And what’s happening with inflation expectations?”
He continued: “If the weakness in the economy creates further downward pressure on inflation and those upward pressures from tariffs and trade disruption are contained, then there could be a need for a further cut in our interest rate.”
Some other economists felt Macklem and the Bank of Canada may be in a tough spot right now, with the central bank’s decisions being based on multiple risks to Canada’s economy including the trade war and inflation, as well as consumers seeking more affordability.
“The Bank of Canada continues to stand in the middle of the road and blinded by the coming headlights. I honestly can’t fault them,” said Derek Holt, vice president and head of Capital Markets Economics at the Bank of Nova Scotia.
“The clear signal from the Bank of Canada is that they haven’t a clue what to expect.”
The Canadian Chamber of Commerce also weighed in on the Bank of Canada’s decision Wednesday, and said there was “no curveball today,” describing how the announcement was more or less expected given the economic landscape the central bank is navigating.
“Trade tensions take centre stage as the Bank of Canada holds rates, but Governing Council’s consensus makes it clear that they’re in a holding pattern until Canada’s mixed economic signals sharpen the overall outlook in the coming months,” said principal economist Andrew DiCapua at the Canadian Chamber of Commerce in an emailed statement.
“A deteriorating scenario paves the way for renewed rate cuts in the fall. The Bank is calculating carefully, given the realities of long-term tariffs have only begun to take hold.”
More to come.
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