BoC opted for wait-and-see approach to rates amid shifting trade policy: summary

Photo: The Canadian Press

The Bank of Canada is seen in Ottawa, on Wednesday, April 16, 2025. THE CANADIAN PRESS/Justin Tang

Uncertainty about both the rapidly changing U.S. trade policy and the impact it’s having on the Canadian economy dominated discussion by the Bank of Canada governing council in the lead-up to its interest rate hold earlier this month.

The decision to keep the benchmark rate at 2.75 per cent came on the heels of U.S. President Donald Trump’s April 3 tariffs, which targeted a slew of countries and roiled markets.

The governing council led by governor Tiff Macklem ultimately opted to keep its powder dry, with some members arguing a rate cut could end up being premature if tariffs and counter-tariffs led to a rapid rise in inflation.

Those arguing for a lower rate highlighted the need for timely action given interest rate cuts take time to work through the economy and noted the stock market turmoil increased concerns over a deeper U.S. recession.

The unpredictable trade policy shift from Washington led the council to hold an "extensive discussion" on risks to the economy and inflation.

It also came up with a framework for assessing the inflationary effects of tariffs, including export demand and how quickly cost increases are passed along to consumers.