Bank of Canada holds interest rate at 2.75%

The Bank of Canada has chosen to keep its key interest rate at 2.75 per cent.

Its decision was widely forecast by economists.

The central bank also chose not to budge on the rate in its last decision, which was announced in April.

It comes as the latest data show inflation was 1.7 per cent in April.

That was primarily due to cheaper energy thanks to the Liberal government’s abandonment of the consumer carbon tax.

The latest GDP data, meanwhile, show the economy grew by 0.5 per cent in the first three months of the year.

On an annualized basis, that would mean the economy would grow by 2.2 per cent this year, though economists, including at the Bank, have warned that the first quarter was anomalous due to the tariff threats from the US.

In its summary of the interest rate decision, the Bank explained that the US continues to spread uncertainty around the world with its tariff regime.

Bilateral negotiations aimed at easing President Donald Trump's tariffs are ongoing, the Bank said, but remain "highly uncertain."

Recent resilience in the global economy, it added, "partly reflects a temporary surge in activity to get ahead of tariffs." Canada is among the countries to have seen this surge.

The Bank's prognosis for the Canadian economy was relatively gloomy.

Discussing recent GDP data, it explained: "Housing activity was down, driven by a sharp contraction in resales. Government spending also declined. The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9 per cent. 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."

Despite that, the central bank insisted the economy is "not sharply weaker," with "unexpected firmness in recent inflation data."

In the meantime, it said, it will wait for "more information on US trade policy."

"Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy," the Bank elaborated. "These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve."

The Bank’s next interest rate decision will be announced on July 30.

After that, there are announcements scheduled for September, October and December.