Bank of Canada Likely to Hold Steady in April, Eyes on Inflation and Tariffs
Economic policymakers weigh inflation pressures against tariff uncertainties
The Bank of Canada’s recent series of rate cuts appears to be approaching a pause. After lowering the overnight rate to 2.75% on March 12, analysts now expect the central bank to hold steady in April. Uncertainty over rising inflation and unresolved trade tensions has shifted market sentiment away from further easing—at least for the immediate future.
A Mixed Economic Picture
Recent data has shown that while the Canadian economy demonstrated solid growth late last year, conditions remain uncertain. Growth figures from the fourth quarter surpassed expectations, yet surveys indicate that consumer confidence and business investment are slowing. Many firms are pulling back on spending and hiring as they await clearer signals from global trade developments. This mixed outlook is prompting the Bank of Canada to adopt a cautious stance.
Bloomberg Nanos Candian Consumer Confidence March 14, 2025
Inflation Rises as Tax Break Ends
A key factor behind the cautious approach is the unexpected jump in inflation. After a two-month GST/HST holiday kept prices in check, annual inflation accelerated to 2.6% in February—well above the bank’s target of 2%. Food prices, especially at restaurants, climbed noticeably, while underlying inflation measures also began to show upward pressure. With inflation expectations starting to shift, the risk of igniting a broader price spiral has become a serious concern.
Canadian CPI Inflation March 18, 2025
Trade Tensions and Tariff Uncertainty
Adding to the inflation puzzle is the persistent uncertainty surrounding trade. Tariff threats from the United States—along with Canada’s potential retaliatory measures—continue to weigh on the economic outlook. As tariff-related costs have not yet fully materialized in consumer prices, there remains a risk that future tariff escalations could further boost inflation. The central bank has repeatedly emphasized that monetary policy cannot fully offset the disruptive impacts of trade conflicts. This has reinforced the decision to hold rates steady in the near term.
Central Bank’s Dilemma
The Bank of Canada is caught in a delicate balancing act. On one hand, previous rate cuts helped to boost consumption and support the housing market. On the other, the recent acceleration in inflation and the uncertain trade environment suggest that further cuts might do more harm than good. With core inflation still hovering above its target and inflation expectations beginning to rise, many policymakers believe that a pause in rate cuts will allow the Bank to better assess the unfolding economic landscape.
Looking Ahead
Market participants are closely watching upcoming economic data, including wage growth and further inflation reports. The next policy meeting on April 16 is expected to bring more clarity on whether conditions have improved enough to justify another cut. For now, however, the consensus is that the central bank will likely maintain its current stance until there is a clearer signal that price pressures are easing.
After the April announcement, the next Bank of Canada rate announcement is June 4, 2025. So, people focused on how policy rates impact mortgage rates and the property market should expect additional help not to arrive until people depart for summer vacations, a typically slow time of year for the real estate market.
While there is room for future adjustments if inflation slows and economic activity picks up, the current mix of rising inflation and tariff uncertainties makes further immediate cuts unlikely. In this environment, a patient approach is seen as the best way to ensure that any policy move supports long-term economic stability without triggering unwanted inflationary pressures.
In summary, the Bank of Canada is set to tread carefully in the coming months. With inflation pressures returning and trade tensions unresolved, holding rates steady in April seems the prudent path forward as the central bank continues to navigate through a complex and uncertain economic landscape.
