Bank of Canada Holds Key interest Rate

This morning, the Bank of Canada announced that it is holding its key interest rate steady. The prime rate remains at 4.95%. As a result, there are no payment changes for variable-rate mortgage holders.What’s Going On with the Economy Right Now?

Since April, the U.S. government has been changing tariffs quite a bit—raising some, lowering others. The U.S. and China have backed off from some of the really high tariffs they had, and trade talks have started with several countries. But it’s still unclear how these talks will turn out, and new tariffs are still being talked about. So, things are uncertain.

Globally, the economy has been holding up okay. One reason is that businesses are rushing to buy and sell before new tariffs hit. In the U.S., people are still spending money, but imports have gone up, which lowered the U.S.’s total economic growth in the first quarter. Inflation has gone down a bit but is still above 2%, and the full impact of tariffs on prices hasn’t hit yet. In Europe, exports have helped the economy, and military spending is going up. In China, the economy is slowing down as earlier government support fades, and high tariffs are starting to hurt its exports to the U.S.

Since the financial troubles in April, stock markets have bounced back and aren’t as shaky now, but they still react strongly to U.S. policy news. Oil prices have been up and down but are about the same as they were in April.

How’s Canada Doing?

In Canada, the economy grew by 2.2% in the first quarter, a bit better than expected. A big reason for this was businesses shipping products to the U.S. earlier than usual to beat the tariffs, and also building up inventories (extra stock). Business investment stayed strong, especially in machines and equipment. Consumer spending slowed a bit but still grew, even though confidence dropped a lot. Housing sales fell sharply, and government spending also went down. The job market is weaker, especially in areas that rely on trade, and unemployment is now 6.9%. The second quarter isn’t expected to be as good because exports and inventories likely won’t stay strong, and overall demand in Canada is still low.

Inflation slowed to 1.7% in April. That’s partly because the federal carbon tax was removed, which helped lower prices. Without including taxes, inflation actually rose to 2.3%, a bit more than expected. The Bank of Canada’s usual ways of measuring inflation also showed it going up. People still think tariffs will raise prices, and many businesses say they plan to pass those higher costs on to customers. The Bank is watching these signs closely to see how inflation might change.

What’s the Bank of Canada Doing About It?

Because U.S. trade policy is still uncertain, Canada’s economy is slowing (but not crashing), and inflation data was a bit higher than expected, the Bank of Canada has decided not to change interest rates for now. They want more information before making any moves.

The Bank is being cautious and is keeping a close eye on a few big risks, like:

• How much U.S. tariffs will hurt Canadian exports.

• How that will affect businesses, jobs, and consumer spending.

• Whether higher costs will lead to higher prices for Canadians.

• What people expect to happen with inflation.

Their goal is to keep inflation under control and support a healthy economy so Canadians can continue to trust that prices will stay stable, even during uncertain times around the world.

The next Bank of Canada announcement will be on July 30, 2025.

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