On April 16, 2025, the Bank of Canada made a pivotal decision that drew attention across financial sectors, households, and international observers alike. In an announcement that marked a shift in its recent monetary policy pattern, the central bank held its key overnight lending rate steady at 2.75%. This decision, while seemingly unremarkable on the surface, carries significant implications for the country’s economic future, market sentiment, and consumer confidence.
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For the first time since June 2024, the Bank opted not to cut interest rates, signaling a pause in what had been a steady stream of rate reductions intended to combat slowing growth and tame inflation. The hold came at a time of elevated uncertainty—particularly stemming from global trade tensions and domestic inflation dynamics—making the move both strategic and cautious.
In this blog post, we’ll unpack what led to this decision, examine the broader economic environment, explore how consumer sentiment and real estate markets are reacting, and assess what Canadians can expect moving forward.
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The Decision to Hold: Context and Rationale
At its core, the decision to keep the policy interest rate at 2.75% reflects the Bank of Canada’s desire to maintain stability in a time of unprecedented uncertainty. The pause marks a departure from a series of rate cuts implemented to mitigate economic downturn pressures. So, why the change now?
Governor Tiff Macklem explained the central bank’s rationale during a press conference, citing the “clouded outlook” stemming from international trade relations—particularly with the United States. This was more than just a vague concern. Recent policy changes south of the border, including newly imposed tariffs and volatile rhetoric from U.S. leadership, have disrupted trade flows and undermined business confidence.
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Although inflation has been trending downward in Canada, global developments have introduced fresh risks. The Bank recognized that while lower inflation gives it some breathing room, jumping into further rate cuts without a clear understanding of how trade dynamics will evolve could backfire.
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The Bank is faced with the complex task of balancing domestic economic support with a watchful eye on international instability. As Governor Macklem stated, “Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What we can and must do is ensure that Canadians continue to have confidence in price stability.”
Inflation: The Push and Pull of Conflicting Forces
Inflation has been a central theme in the Bank’s monetary policy strategy over the past two years. In March 2025, the Consumer Price Index (CPI) increased by 2.3% year-over-year, a decrease from February’s 2.6%. While this might seem like progress, the underlying components tell a more nuanced story.
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A significant portion of the decline was driven by lower travel and gasoline costs, which can be highly volatile and are often influenced by global factors such as oil supply, geopolitical instability, and seasonal trends. However, that relief was partially offset by a domestic policy shift: the end of the temporary suspension of the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) on February 15. This policy reinstatement led to higher consumer prices for a range of goods, adding upward pressure on inflation.
The Bank is watching these cross-currents carefully. On one hand, a softening economy may suppress inflation due to decreased demand. On the other hand, tariffs and other trade barriers may drive up input costs, which are often passed on to consumers. The challenge is determining which force will dominate and when. Hence, the Bank’s decision to wait and monitor.
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Trade Relations with the United States: A Growing Wildcard
The single largest source of economic unpredictability currently facing Canada is its trade relationship with the United States. Although Canada was spared from some sweeping global tariffs imposed by the new U.S. administration, targeted duties on steel and aluminum have rattled markets and strained diplomatic ties.
Even more concerning are the recent statements from U.S. officials questioning aspects of Canada’s sovereignty and economic independence. While such comments may appear to be political bluster, they create real consequences by undermining investor confidence and adding uncertainty to long-term trade planning.
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Companies that rely on predictable cross-border trade are now faced with the prospect of volatile pricing, disrupted supply chains, and regulatory confusion. In sectors ranging from manufacturing to agriculture, executives are hesitating to make capital investments or hire new workers—waiting instead for clarity that may be a long time coming.
For the Bank of Canada, these developments introduce an external shock that monetary policy cannot directly address. What it can do, however, is act with caution to prevent the domestic economy from being unduly destabilized by global forces beyond its control.
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Canadian Consumer Confidence: Taking a Hit
While monetary policy is often discussed in abstract economic terms, its real-world impact is felt most acutely by households and consumers. Right now, a growing number of Canadians are expressing unease about the country’s economic future.
According to recent survey data, nearly half of Canadians—49%—say they feel confident in the current economy. However, only 6% described themselves as “very confident,” while 43% said they are not confident at all. These numbers paint a picture of a population that is anxious and unsure about what comes next.
Why does this matter? Because consumer confidence is a major driver of economic activity. When people feel secure in their financial outlook, they are more likely to spend, invest in real estate, and make other large purchases. When confidence falters, spending slows—and with it, GDP growth.
This decline in sentiment is already having tangible effects in the real estate sector, which we’ll explore next.
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Real Estate Market: A Chilly Spring
Spring is traditionally one of the busiest seasons for real estate in Canada. However, this year has proven to be an exception. The usual surge in listings and homebuyer activity has been subdued, especially in high-cost provinces such as Ontario and British Columbia.
Real estate professionals cite geopolitical uncertainty, inflation concerns, and market fatigue as primary factors weighing on buyer sentiment. Many prospective buyers are taking a wait-and-see approach, wary of making major financial commitments in an uncertain economic climate.
Phil Soper, CEO of Royal LePage, commented that “the typical spring market didn’t kick off as energetically as expected, and geopolitical uncertainty is playing a major role.” This observation aligns with broader data showing reduced sales volumes and a slowdown in price growth.
Moreover, the Bank of Canada’s decision to hold rates, rather than cut them further, may have disappointed some buyers hoping for lower borrowing costs. While mortgage rates remain relatively attractive, the pause in rate reductions signals that the era of ultra-cheap lending may be nearing its limit—at least for now.
Business Investment and Employment: Holding Back
Beyond consumer behavior, trade uncertainty is affecting corporate decision-making. Businesses thrive on predictability, and when the rules of the game keep changing—as they are now—many opt to postpone investments or expansion plans.
This cautious approach has knock-on effects for employment. Without new projects or increased demand, there is less need for hiring, which in turn limits wage growth and consumer spending. The cycle becomes self-reinforcing.
Although Canada’s labor market remains relatively stable for now, job creation has begun to decelerate in several key industries. The risk is that prolonged uncertainty could tip the balance from a slowdown to a contraction—especially if consumer spending continues to soften.
What Comes Next? Scenarios for the Canadian Economy
Given the unpredictable global backdrop, the Bank of Canada has refrained from offering a traditional economic forecast this time around. Instead, it has laid out two broad scenarios that could unfold depending on how trade tensions develop:
Optimistic Scenario – Trade Tensions Ease
In this case, global growth stabilizes, tariffs are reduced or eliminated, and investor confidence rebounds. The Canadian economy experiences moderate expansion, inflation stabilizes around the 2% target, and the Bank can gradually normalize interest rates over time.Pessimistic Scenario – Prolonged Trade Conflict
If trade wars escalate or remain unresolved, the global economy could fall into recession. Canada, heavily reliant on exports, would likely follow suit. Inflation could spike temporarily due to higher import costs, while GDP contracts. In this environment, the Bank might have to lower rates again or introduce unconventional monetary measures.
The Bank’s current stance of holding the rate steady gives it flexibility to respond to either scenario.
Conclusion: Steady Hands in Choppy Waters
The Bank of Canada’s April 2025 decision to hold its key interest rate at 2.75% is not just a pause—it’s a statement of strategic patience. It reflects an acknowledgment of the limits of monetary policy in resolving geopolitical uncertainty, and a commitment to maintaining price stability in the face of external shocks.
For Canadians, this means we are in a holding pattern. Mortgage rates are unlikely to drop significantly in the short term, real estate markets may remain tepid, and consumer confidence could continue to waver unless greater economic clarity emerges.
Yet there is also strength in stability. By refusing to act hastily, the Bank of Canada is preserving its ability to respond effectively once the path forward becomes clearer. Whether that path leads to renewed growth or further turbulence remains to be seen—but for now, a steady hand on the tiller may be exactly what the country needs.
As we look ahead to the Bank’s next policy announcement on June 4, all eyes will remain on trade developments, inflation trends, and consumer sentiment. One thing is certain: in today’s interconnected and unpredictable world, the importance of thoughtful, measured policy decisions cannot be overstated.
