The Bank of Canada held interest rates at 2.75 per cent on Wednesday, pointing to a mixed bag of unexpectedly strong data and the uncertainty of U.S. tariffs as reason for the hold — and some experts say, going forward, rate cuts alone won’t be enough to stop an economic slowdown.
In his opening remarks to reporters, governor Tiff Macklem characterized the Canadian economy as “softer but not sharply weaker” and said the central bank’s governing council was in agreement about today’s rate decision. The decision marks the second consecutive hold since March.
Economists had largely pivoted from initial expectations the central bank would cut the interest rate by 25 basis points after the first-quarter GDP came in at an annualized rate of 2.2 per cent last week, which was stronger than anticipated.
That strength was largely due to a surge in exports, with businesses stocking up on inventory before U.S. President Donald Trump’s initial round of tariffs went into effect in the spring.
But Macklem was quick to curb any enthusiasm around the latest GDP reading, saying that “the first quarter borrows economic strength from the future, so the second quarter is expected to be much weaker.”
Bank of Canada governor Tiff Macklem, speaking after again holding a key interest rate steady, was asked whether persistent economic uncertainty suggests a need for further rate cuts.
Likewise, recent headline inflation showed that price growth had slowed to 1.7 per cent in April, largely due to the end of the consumer carbon tax. However, core inflation — the Bank of Canada’s preferred measure of price growth, because it strips out sector volatility and one-time tax changes — crept up above three per cent, well beyond the Bank of Canada’s target of two per cent.
“That has got our attention,” Macklem told reporters, saying the uptick “does make you think that underlying inflation could be a little firmer than we thought.”
Rate cut alone won’t buoy housing market, says broker
Even if the central bank had cut rates by 25 basis points, it wouldn’t have much of an effect on housing, said Toronto real estate broker John Pasalis in an interview with CBC News.
“The housing market right now is stalling largely because of all of the economic uncertainty,” Pasalis said. “Lower rates are not going to push people back into buying a home if they’re worried they’re going to lose their jobs.”
The central bank noted Wednesday that national housing activity had declined in the first quarter, mostly because of a drop in the resale market. National prices are down slightly on a year-to-year basis, too.
Pasalis said he doesn’t expect activity to pick up this summer, though that could change by the fall, should the Bank of Canada opt to cut rates to two per cent over the next several meetings.
Still, lower interest rates need to be matched with “more clarity on the economy, on the…
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