BoC Pauses Rate Cuts Amid Economic Uncertainty

In a significant shift from traditional economic forecasts, the Bank of Canada has outlined two potential scenarios for the nation’s economy, reflecting the uncertainty gripping global markets as of April 16, 2025. The first scenario envisions a deep recession, driven by external pressures, while the second foresees a sharp spike in inflation rates. This departure from standard projections underscores the complex challenges facing Canada’s economy, particularly in light of potential trade disruptions and fluctuating global policies.

The central bank has halted its streak of interest rate reductions, maintaining the key rate at 2.75% after seven consecutive cuts from a high of 5.00% at the start of the current quantitative easing cycle. Governor Tiff Macklem explained that the pause is a cautious move to gather more data on the impact of proposed customs tariffs on both Canadian and global economies. “A lot has changed since our last rate cut five weeks ago in March,” Macklem noted. “The future remains unclear. We don’t yet know the scope of potential tariffs, whether existing ones will be lowered or escalated, or how long they might persist.”

Macklem emphasized the bank’s commitment to controlling inflation while supporting economic growth. The lack of clarity around trade policies has made it difficult to predict outcomes with the confidence of past cycles, prompting a wait-and-see approach. “We cannot forecast as we once did until the situation becomes clearer,” he added. The central bank remains vigilant, ready to resume rate adjustments cautiously once more information emerges, ensuring stability and resilience in Canada’s economic framework.