Bank of Canada Holds Rates Steady Amid Trade Uncertainty: What It Means for You

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.

The United States has recently changed some of its trade rules and added tariffs on goods from other countries. These changes are unpredictable and have made it harder for businesses to plan. Because of this, it’s difficult to know what will happen next in the Canadian economy—or globally. To help navigate the uncertainty, the Bank of Canada has outlined two possible scenarios.

In the first scenario, tariffs remain limited. The Canadian economy slows slightly, but inflation stays close to normal levels. In the second scenario, the situation worsens. A prolonged trade war could push Canada into a recession, meaning the economy would shrink. Prices could also rise more than usual for a short period.

Globally, the situation is shifting. At the end of 2024, the world economy was strong, and inflation was easing toward central bank targets. Now, rising trade tensions are clouding the outlook. In the U.S., the economy is starting to slow, and consumer confidence is weakening. In Europe, growth has been modest, especially in the manufacturing sector. China’s economy was performing well, but recent data shows signs of a slight slowdown.

Stock markets have been highly volatile in response to ongoing tariff announcements. Oil prices have dropped sharply, largely due to expectations of slower global growth. Meanwhile, the Canadian dollar has appreciated slightly as the U.S. dollar has weakened.

In Canada, the economy is also slowing. Trade uncertainty is making consumers and businesses more cautious. Fewer homes are being sold, business investment is down, and overall spending has declined. Job growth has slowed, with some losses in March, and many companies plan to reduce hiring. While wages are still rising, the pace has slowed.

Inflation was 2.3% in March, down slightly from February but still higher than earlier in the year. Some of the recent increase is due to the return of certain taxes and a rebound in goods prices. However, inflation may ease again soon. The removal of the carbon tax for one year and falling oil prices are expected to put downward pressure on prices. Still, trade issues and supply chain delays could push some prices back up, depending on how businesses respond and how quickly they pass higher costs on to consumers.

The Bank of Canada is working to balance two key goals: supporting economic growth and keeping inflation under control. While it can’t fix trade disputes, it can help maintain price stability. The Bank is closely watching how tariffs affect Canadian exports, business investment, employment, and consumer prices.

Its main goal remains the same: to control inflation and support the economy as best it can during this uncertain time.

The next Bank of Canada announcement will be on June 4, 2025.

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