BoC left its overnight rate unchanged at 2.75% today. BoC reiterated its intention to “proceed carefully,” noting a wide range of uncertainties. Key among these are the drag from US tariffs on Canadian exports, and the downstream effects on business investment, employment, and household spending. The central bank also flagged concerns about how quickly cost increases could be passed on to consumers and how inflation expectations might respond.
A central theme in the BoC’s April Monetary Policy Report is the sharp deterioration in the global trade outlook, driven by the sweeping and erratic shift in US tariff policy.
To frame the uncertainty, BoC presented two scenarios. In the first, tariffs remain “limited in scope” but high uncertainty dampens growth “temporarily”, keeping inflation near the 2% target.
In contrast, the second scenario envisions a “protracted trade war” with the US, which would likely drive Canada into recession in 2025. Inflation could overshoot 3% next year.
The Bank was clear that these are not forecasts, but rather a range of plausible outcomes given the unprecedented nature of the policy shift.
