THE Bank of Canada hold interest rate As well as the trade war of US President Donald Trump with Canada is intensifying.
The central bank maintained its reference rate at 2.75% on Wednesday, ending a sequence of seven reduction in consecutive rate.
Analysts were divided into what to expect from the Bank of Canada, some saying that they expected a drop of 25 base points and others expecting the rate to be stable.
“The major change in the orientation of American trade policy and the unpredictability of prices have increased uncertainty, reduces the prospects for economic growth and increased inflation expectations. Omnipresent uncertainty makes you unusually difficult to project growth in GDP and inflation in Canada and in the world,” the bank said in a press release.
The bank said that “extreme market volatility” added to global economic uncertainty and that the drop in oil prices reflected lower prospects for global growth. He said pricing uncertainty continued to slow down the Canadian economy and affect the confidence of consumers and businesses.
“Consumption, residential investment and corporate expenses seem to be weakening in the first quarter.
Global inflation took place for Canadians in March, but the end of the TPS / HST holidays and Trump’s trade war continues to highlight consumers in Canada. Statistics Canada said on Tuesday that the annual inflation pace has cooled at 2.3% in March, compared to 2.6% in the previous month.
“ The future is not clearer ”
Addressing journalists in Ottawa after the announcement, the Governor of the Bank of Canada, Tiff Macklem, said: “At this meeting, we decided to hold our unchanged policy while we get more information on the way for American prices and their impacts.”
He added: “Many things have happened since our March decision five weeks ago. But the future is not clearer. We still do not know what prices will be imposed, whether reduced or degenerate, or how long will all last.”
Macklem said it expects domestic demand in Canada to be relatively stable in the first quarter of 2025 and that economic growth in the second quarter is lower.
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“Looking beyond the very close term, what happens to the Canadian economy and inflation critically depends on American trade policy, which remains very unpredictable,” he said.
Macklem said there were two probable scenarios in the Canadian economy. In the first scenario, Macklem said, most of the new prices will be “negotiated”. In this scenario, GDP growth would block in the second quarter but would develop moderately later. Inflation would drop below 2% in this scenario in 2025 and 2026, he said.
The second scenario presupposes a “long -term world trade war”.
“The economic consequences (of a long -term trade war) are severe. Canada’s GDP contracts in the second quarter and the economy is in recession for a year. Growth gradually returned in 2026 but remains soft until 2027, because American prices would definitively reduce the potential production of Canada and reduce our standard of living, “he said, adding that inflation would permanently increase Canada in the mid-20126.
“ Balancing Act ‘
Doug Porter, chief economist at BMO Economics,, said the Bank of Canada has decided not to shake the boat in a volatile economic climate.
“It was considered a very close call, both by economists and markets,” said Porter.
“The main message we have heard from the bank today is to look at that it is an incredibly volatile situation that could change in central. And the bank is ready to act as decisively as necessary, because things are clearing,” he said, adding that the markets did not react to the rate announcement.
The RBC economist, Claire Fan, said that the future prospects for inflation remain uncertain,
“The future path of inflation beyond the very close term (where the end of the consumption carbon tax should lower the head of the head) remains very uncertain, subject to changes in the volatile trade policy of the United States,” she said in a note on Wednesday.
Fan said Canada could see unemployment jump in the coming year.
“We are not looking for a recession in Canada this year, but we are waiting for us to postpone more in the demand for hiring will push the unemployment rate higher at more than 7% in the second half,” she said.
Andrew DiCapua, principal economist of the Canadian Chamber of Commerce, said that the Banque de Canada had put concerns about inflation at the forefront of its decision.
“They are increasingly concerned about the risks of inflation. Higher prices and tariff costs highlighted in their last survey have tipped the risk balance, letting them stop in the absence of convincing data, “he said.
“I am not surprised that the governor has taken a relatively dominant tone, recognizing that incoming data will probably force the bank to reduce interest rates, which do not currently stimulate a lot of stimulation to the economy.”
You Nguyen, an economist at RSM Canada, said: “The reality is that the volatility of commercial policy, which has an impact on economic prospects, remains simply too high and that the Banque de Canada will have to continue to make its rate decision one at a time, constantly taking into account the dynamics between jobs, prices and financial markets.”
She added: “As the policy rate is approaching the neutral, we expect a rate drop in June. As the risks of recession increase, the concerns about growth would prevail over those concerning inflation. ”
Shannon Terrell, financial expert from Nerdwallet Canada, said that the rate “although frustrating for borrowers, recalls the reality of the precarious balancing act of the bank”.
She said: “Inflation can sit at the moment, but the heat of prolonged prices has already started to increase. If anything, Canadians should take heart in the risk of the risk of caution. There are no easy answers in the midst of a tariff war.”