Bank of Canada Keeps Interest Rate at 2.75% – June 2025 Update
On June 4, 2025, the Bank of Canada announced it will keep its policy interest rate steady at 2.75%. This decision reflects a cautious approach as the Bank balances modest economic growth against rising core inflation and growing global uncertainties. Here’s a closer look at what this means:
Interest Rate Decision
The overnight rate remains at 2.75%, with the Bank Rate set at 3.00% and the deposit rate at 2.70%.
Economic Growth
Canada's economy grew at an annualized rate of 2.2% in the first quarter of 2025, slightly stronger than the Bank’s earlier forecast. This growth was largely supported by higher exports and businesses increasing inventories in anticipation of new U.S. tariffs. However, underlying demand within the economy stayed flat, indicating a softer domestic outlook.
Inflation Trends
Headline inflation slowed to 1.7% in April. However, core inflation—which excludes more volatile prices like food and energy—rose to an average of 3.15%, above the Bank's 2% target. This increase is mainly due to cost pressures from recent tariffs and continued supply chain disruptions.
Trade Policy Uncertainty
The U.S. government’s decision to raise tariffs on Canadian steel and aluminum to 50% has added uncertainty to the economic outlook. These trade tensions are creating new challenges for both inflation control and economic growth.
Future Outlook
The Bank of Canada indicated that while it plans to keep the rate steady for now, it remains ready to adjust if necessary. Policymakers will closely monitor economic data, especially inflation trends and global developments, before making any future changes.
The next interest rate decision is scheduled for July 30, 2025.
In summary, the Bank of Canada is taking a cautious stance, maintaining its focus on economic stability in the face of mixed signals from growth, inflation, and global trade.
