Bank of Canada Holds Interest Rate at 2.75% Amid Mixed Economic Signals

The Bank of Canada (BoC) has chosen to hold its overnight interest rate steady at 2.75% for the second straight month. This move comes after a significant easing cycle that saw the rate cut by 225 basis points since June 2024.

Why the Hold?
The decision reflects a cautious approach by the central bank as it monitors a complex economic landscape. While GDP grew at an annualized rate of 2.2% in Q1 2025—buoyed by a spike in exports ahead of new U.S. tariffs—domestic demand remains soft. Consumer spending has slowed, and unemployment continues to tick upward, indicating potential cracks in economic stability.

Inflation remains a key concern. Core measures of inflation have recently crept above the BoC's preferred 1–3% target range, challenging the case for further aggressive cuts—at least in the short term.

Market Response
The markets had largely anticipated a pause, with a 75% probability priced in prior to the announcement. The Canadian dollar has been performing strongly, partly supported by rising oil prices. The S&P/TSX futures rose modestly in response to the hold, reflecting steady investor confidence.

What’s Next?
Many economists still expect the Bank of Canada to resume rate cuts later this year, depending on how inflation evolves and whether domestic economic weakness deepens. All eyes will now turn to the next rate announcement on July 30, 2025.

For now, the central bank is signaling patience—waiting for clearer signs that inflation is under control and that the economy can withstand further policy easing.