The Bank of Canada (BoC) has maintained its target for the overnight rate at 2.75%. In its announcement, the BoC acknowledged that the US administration continues to increase and decrease various tariffs and that while bilateral trade negotiations have begun with a number of countries, the outcomes of these negotiations are still up in the air. Tariff rates are well above their levels at the beginning of 2025, new trade actions are still being threatened, and so as a result, uncertainty remains high.

CIBC Capital Markets says today’s decision was widely expected, and that in line with its recent messaging, the BoC continues to await greater clarity on various policy fronts and weigh risks of tariff-driven inflation against the downward inflation pressure of economic slack. They also say July looks more promising for a quarter point ease if, as they expect, the jobless rate continues to move higher, and inflation in items not subject to tariff pressures eases off a bit.

Adam Ditkofsky, Sr. Portfolio Manager, Global Fixed Income, CIBC Asset Management concurs that, “We did not anticipate that the BoC would cut rates today, which was broadly aligned with market expectations. Still, Tiff Macklem’s comments highlighted how the BoC’s decision to pause continues to be driven by uncertainties related to tariffs and concerns related to re-accelerating inflation. We see this as the BoC being less forward looking due to near term uncertainties.”

“While the BoC acknowledged some weakness to the economy, Q1 data was stronger than they had anticipated leaving them time to act. We believe this is an appropriate course of action by the BoC, given the economic uncertainty, as it has already been far more aggressive than other developed countries in cutting rates this cycle. Still, we’re taking a more cautious approach in our fixed income portfolios and have positioned ourselves more defensively. Based on our assessment, Canada continues to face risks of weakening economic conditions, rising unemployment and softness in real estate markets. All of which could warrant further rate cuts this year, should conditions continue to worsen. Overall, we believe the BoC will need cut rates further this year especially as trade tensions remain escalated and the economy is at risk of further deteriorating.”

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