Governor Tiff Macklem said the Governing Council reached a “clear consensus” to leave the policy rate unchanged, while assessing the weakening momentum in domestic demand and the rising costs associated with tariffs.
“We are being less forward-looking than usual,” Macklem said at a press conference. “Our priority is to ensure that Canadians continue to have confidence in price stability through this period of global upheaval.”
The Bank also held the Bank Rate at 3 per cent and the deposit rate at 2.70 per cent. Real GDP rose by 2.2 per cent in the first quarter, slightly ahead of the Bank’s forecast. However, much of the growth was driven by a pull-forward in exports and inventory accumulation before tariff implementation. Final domestic demand was flat, housing activity declined, and government spending contracted. The labour market weakened with the national unemployment rate rising to 6.9 per cent.
The Bank expects economic activity to slow in the second quarter as the temporary boost from trade unwinds and domestic demand remains subdued.
Inflation data presented a mixed picture. Headline CPI inflation fell to 1.7 per cent in April following the federal government’s elimination of the consumer carbon tax. However, when tax impacts are excluded, inflation rose to 2.3 per cent, slightly stronger than anticipated. The Bank’s preferred core inflation measures also moved higher.
“The fact that quite a number of core measures all moved up does make you think that underlying inflation could be a little bit firmer than we thought,” Macklem said.
Despite concerns about persistent price pressures, the Governor acknowledged that if economic conditions weaken further and cost-driven inflation is contained, the Bank may consider lowering rates. However, he stressed that this is not forward guidance.
“There could be a need for a further reduction in our policy interest rate,” Macklem said. “But don’t take that as forward guidance. Take that as part of our deliberations—nothing more, nothing less.”
Asked about the impact of tariffs, Macklem noted that trade disruptions are already affecting Canadian businesses. Many firms are incurring additional costs by seeking new suppliers or redirecting exports to non-U.S. markets. While the full effect of retaliatory tariffs has yet to appear in CPI data, the Bank expects it will begin to show up in the coming months.
Senior Deputy Governor Carolyn Rogers said the Bank is putting additional weight on business surveys and outreach, given the current lag in hard data. “Every time an announcement’s made, businesses are left to figure out what it means. All of that has costs,” she said.
The next interest rate decision is scheduled for July 30.