Bank of Canada Maintains Overnight Rate at 2.75%

Strategic Insights -

The Bank of Canada has announced that it will maintain its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. The decision comes as global trade tensions continue to weigh on the economy, with the US administration's ongoing tariff increases and decreases creating uncertainty. The Canadian economy has shown resilience in recent months, but this partly reflects a temporary surge in activity to get ahead of tariffs.

Key Takeaways:

  • The Bank of Canada has maintained its target for the overnight rate at 2.75% due to ongoing uncertainty about US trade policy and its impacts on the Canadian economy.
  • The US administration's continued tariff increases and decreases have created uncertainty about future trade actions and their effects on global trade.
  • The Canadian economy has shown resilience in recent months, but this partly reflects a temporary surge in activity to get ahead of tariffs.
  • Domestic demand in the US remained relatively strong, but higher imports pulled down first-quarter GDP.
  • US inflation has ticked down but remains above 2%, with the price effects of tariffs still to come.
  • In Europe, economic growth has been supported by exports, while defence spending is set to increase. China's economy has slowed as the effects of past fiscal support fade.
  • High tariffs have begun to curtail Chinese exports to the US.
  • Since the financial market turmoil in April, risk assets have largely recovered and volatility has diminished, although markets remain sensitive to US policy announcements.
  • Oil prices have fluctuated but remain close to their levels at the time of the April MPR.
  • In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected.
  • The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9%.
  • The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.
  • CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6 percentage points.
  • Excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected.
  • The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving.

Statistics:

  • The Bank of Canada has maintained its target for the overnight rate at 2.75%.
  • The US administration has increased and decreased various tariffs since the April Monetary Policy Report.
  • Tariff rates are well above their levels at the beginning of 2025.
  • New trade actions are still being threatened.
  • The global economy has shown resilience in recent months, partly reflecting a temporary surge in activity to get ahead of tariffs.
  • Domestic demand in the US remained relatively strong, but higher imports pulled down first-quarter GDP.
  • US inflation has ticked down but remains above 2%.
  • CPI inflation eased to 1.7% in April.
  • Excluding taxes, inflation rose 2.3% in April.
  • The labour market has weakened, with unemployment rising to 6.9%.
  • The economy is expected to be considerably weaker in the second quarter.
  • Economic growth in the first quarter came in at 2.2%.

Sources:

  • Bank of Canada (2025)
  • The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% (Bank of Canada, 2025)
  • The Bank will publish its next Monetary Policy Report (MPR) at the same time as the next scheduled date for announcing the overnight rate target, which is July 30, 2025. (Bank of Canada, 2025)