The Bank of Canada seriously considered cutting its benchmark interest rate earlier this month amid mounting concerns over the economic fallout from U.S. President Donald Trump’s escalating trade war, according to a newly released summary of internal deliberations.
The behind-the-scenes report, published Wednesday, reveals that all seven members of the central bank’s governing council debated a 25-basis-point rate cut during their April 16 policy meeting, but ultimately chose to hold the key rate steady at 2.75% due to inflationary risks tied to U.S. tariffs and broader global instability.
While the Canadian economy ended 2024 in “good shape,” the council anticipates a slowdown through 2025, citing reduced consumer confidence, weakening real estate activity, and softening labour markets. Canada’s GDP contracted by 0.2% in February, marking the first significant sign of economic deceleration this year.
The report warns that if U.S. tariffs — particularly on automobiles, steel, aluminum, semiconductors, and pharmaceuticals — become more severe or permanent, Canada could fall into a recession by 2026, with inflation exceeding 3% as supply chains adjust and costs rise.
Conversely, if the tariff measures are rolled back or prove temporary, the report suggests the inflationary impact will be more subdued, though economic growth would still slow.
“In this environment, policymakers agreed to be less forward-looking than usual,” the bank stated, adding that new data would dictate future decisions. “If new information pointed clearly to one side or the other of these opposing forces on inflation, governing council would be prepared to act decisively.”
Many economists now expect the Bank of Canada to resume its rate-cutting cycle in June, possibly by 25 or even 50 basis points. “Today’s soft GDP numbers suggest the economy was already losing momentum ahead of the worst of the tariff shock to date,” said Royce Mendes, economist at Desjardins.
Complicating the picture further, President Trump signed an executive order Tuesday offering U.S. automakers tariff rebates and clarity on stacked tariffs, a move that analysts say adds more unpredictability to cross-border trade relations.
With Canada’s next jobs report due next week and updated GDP figures expected by the end of May, the central bank is expected to take a reactive approach, according to BMO economist Benjamin Reitzes. “The Bank of Canada is going to be reactive rather than proactive.”
The bank’s next interest rate announcement is scheduled for June 4, 2025.