Bank of Canada holds rate at 2.75%

June 4, 2025

The Bank of Canada decided to keep its key interest rate, called the overnight rate, at 2.75%. This rate influences the cost of things like loans, mortgages, and savings across Canada.

What’s going on globally?
The U.S. keeps changing tariffs (taxes on imported goods), creating a lot of uncertainty. The U.S. and China have lowered some extreme tariffs and started trade talks with other countries, but the results are unclear, and tariffs are still higher than earlier this year. More trade changes might be coming. The global economy has held up, but some growth came from businesses rushing to avoid tariffs. In the U.S., people are spending, but imports hurt economic growth, and inflation is above 2%, with tariffs likely to push prices up more. Europe is growing due to exports and plans to spend more on defense. China’s economy is slowing as past government support fades, and U.S. tariffs are hitting Chinese exports. Financial markets have stabilized since April’s chaos, but they’re still jumpy about U.S. policy. Oil prices are about the same as earlier this year.

What’s happening in Canada?
Canada’s economy grew by 2.2% in early 2025, a bit better than the Bank expected. Businesses exported more to the U.S. and stocked up on goods to beat tariffs, which helped. But spending by people and the government slowed, and fewer homes were sold. Businesses spent more on equipment, which was a plus. However, jobs are tougher to find, especially in industries tied to trade, and unemployment is now 6.9%. The economy is likely to slow down soon as exports and stockpiles drop, and everyday spending stays weak.

Inflation (how fast prices rise) dropped to 1.7% in April, mostly because the federal carbon tax was scrapped, which lowered prices. Without that, inflation was 2.3%, a bit higher than the Bank thought. People and businesses expect tariffs to make things more expensive, and many companies plan to pass those costs to customers. The Bank is keeping a close watch on prices.

Why keep the rate at 2.75%?
With U.S. tariffs causing uncertainty, the economy slowing but not collapsing, and prices rising a bit more than expected, the Bank chose to hold the rate steady. They want to learn more about how tariffs will affect Canada before making changes. The Bank is balancing a weaker economy (which could lower prices) against higher costs from tariffs (which could raise prices).

The Bank is being careful, watching risks like:

How tariffs might cut demand for Canadian goods.

How this could hurt jobs, business spending, and what people buy.

How fast tariff costs make everyday items pricier.

How people’s views on future prices change.

The Bank’s main job is to keep prices stable and support the economy through this global trade mess. They’ll keep checking data to decide what to do next.