Bank of Canada Holds Key Rate Amid Economic Uncertainty

Bank of Canada Holds Key Lending Rate Amid Economic Uncertainty

On April 16th, the Bank of Canada announced it would maintain the overnight lending rate at 2.75%. This is the first time since June 2024 that the Bank has opted not to adjust the rate.

Trade Policy Uncertainty Contributes to Economic Instability

The decision to keep the rate unchanged follows rising economic uncertainty due to trade tensions with the United States. The Bank of Canada expressed concerns about potential inflation increases and the difficulty of predicting GDP growth. Although global economic growth was stable in late 2024, new tariffs have added unpredictability to the economic forecast.

Governor’s Statement on Uncertainty

Tiff Macklem, Governor of the Bank of Canada, remarked that while tariffs’ long-term impacts remain unclear, the Bank’s priority is maintaining price stability. Macklem emphasized the Bank’s focus on managing inflation despite a weaker economy and higher costs.

Recent Economic Indicators

In March, Canada’s CPI rose by 2.3% year-over-year, a decrease from February’s 2.6%. The slowdown was primarily driven by lower travel and gasoline prices. However, the end of the GST/HST suspension led to higher product prices, partially offsetting this decline.

Impact of Trade War on Consumer Confidence

A Royal LePage survey found that nearly half of Canadians lack confidence in the economy. This uncertainty has affected consumer spending, especially in real estate markets like Ontario and British Columbia, where spring activity has been slower than usual.

Geopolitical Tensions Affecting the Housing Market

The geopolitical climate, particularly trade disputes and tariff conflicts, has made Canadians more cautious in their spending decisions. While tariffs on steel and aluminum have not directly impacted housing, the overall atmosphere of uncertainty has led to a more hesitant market.