The Bank of Canada has released a summary of the Governing Council’s deliberations preceding the April 16th decision to keep interest rates steady at 2.75%.
Uncertainty surrounding trade policy and tariffs remains a core concern, with economic growth forecast to slow in 2025. Slumping household spending and business investment were also noted. The deliberations reference record-low consumer confidence and slowing consumption, along with lower resale activity in the Toronto housing market. A boost in Q1 growth is expected due to the one-time factor of U.S. companies ramping up imports from around the world, including Canada, to get ahead of the Trump Administration’s tariff policy. Growth in Q2 is expected to be lower as a result.
The Governing Council further notes slowing wage growth and reduced hiring by businesses due to trade policy uncertainty. Inflation remains near the 2% target (2.3%), but inflation expectations are rising due to the belief that tariffs will drive up costs. Lower oil prices and the absence of the consumer carbon tax are expected to bring inflation down. The BoC considered two scenarios – one where tariffs are short-lived, the other where tariffs endure – when deciding whether to cut rates. The decision was ultimately made to stand pat for now, given the difficulty in predicting the U.S. trade posture in the short term.
These deliberations are one of a growing number of indications that U.S.-induced trade uncertainty is freezing investment and hiring in Canada and around the world. Given that a former central banker is now Prime Minister, the words of the Governing Council will carry significant weight in the Carney Government, and studying BoC deliberations can help us understand a key influence on economic & monetary thinking in Ottawa.
Spencer Fernando
Image – YouTube
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