Bank of Canada Holds Rates Steady Second Time in a Row – What to Expect Next?

The Bank of Canada opted to maintain its benchmark interest rate at 2.75% for the second consecutive meeting on Wednesday, June 4, citing persistent inflation risks and unpredictable U.S. trade policies. Despite growing concerns over economic headwinds, policymakers chose a cautious stance, prioritizing stability over intervention.

Governor Tiff Macklem emphasized a “strong consensus” within the central bank’s monetary policy committee to keep rates unchanged, awaiting clearer signals on how escalating tariffs might impact economic growth.

“Uncertainty remains elevated,” Macklem stated, referencing the U.S. decision to impose 50% tariffs on steel and aluminum imports—double the previous rate—effective immediately. “This underscores the erratic nature of U.S. trade strategy.”

Historically, the Bank of Canada adjusts rates to manage inflation and economic activity: raising them to curb spending and cool price pressures, or cutting them to stimulate growth during downturns.

“This uncertainty presents a dual challenge for policymakers,” noted Doug Porter, Chief Economist at BMO. “It doesn’t dictate whether they should ease or tighten policy further. Instead, it forces a meeting-by-meeting approach, with each decision hinging on the latest data.”

Macklem acknowledged “diverging views” within the Governing Council on future policy direction but suggested that, on balance, there was room to lower rates if trade tensions began to drag down growth while inflation remained subdued.

Porter warned that holding rates steady for two consecutive meetings risks deepening an economic slowdown, though he conceded the central bank may have little choice given the circumstances.

Core inflation—a key metric for the Bank of Canada—surpassed 3% in April, reflecting what Macklem described as “atypical volatility” in underlying price trends. According to Porter, a rate cut under such conditions would require clear evidence of economic fragility.

Looking ahead, Porter anticipates the Bank’s policy rate could bottom out at 2% by early 2026, with a return to a wait-and-see approach in the interim.

Before its next rate announcement on July 30, the Bank of Canada will assess two months of inflation and employment figures—critical inputs for its upcoming decision.