The Bank of Canada held its key interest rate at 2.75% today, hitting pause after seven straight cuts.

This decision comes amid growing uncertainty due to escalating trade tensions with the U.S. and unpredictable tariff policies that are clouding Canada’s economic outlook.

“The unpredictability of U.S. trade policy,” and the “magnitude and speed of the shifts” are unprecedented, the Bank explained in its latest Monetary Policy Report (MPR).

The Bank opted to maintain its current rate because it needs more clarity about how the trade situation will unfold.

Inflation moderated slightly to 2.3% in March, but short-term expectations remain elevated as businesses and consumers brace for potential disruptions, it noted.

“Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval,” the Bank said. It emphasized that monetary policy “cannot resolve trade uncertainty” but must support economic stability and growth by keeping inflation under control.

Two potential paths for the economy

Instead of updating its standard base-base economic forecast, the Bank outlined two distinct scenarios based on future developments in trade policy:

Scenario 1: Limited damage, prolonged uncertainty. GDP growth slows temporarily but avoids recession, averaging 1.6% annually through 2027, with inflation briefly dipping due to carbon tax removal before stabilizing around 2%.

Scenario 2: Trade war and recession. Canada faces a significant recession in 2025, with GDP contracting sharply and inflation spiking above 3% in 2026. Recovery is slow and uneven, gradually stabilizing by 2027.

“Taken together, the scenarios frame many plausible paths for Canadian inflation and GDP growth, but uncertainty about how the economy would respond to tariffs is not entirely captured in these scenarios,” the Bank added. “These uncertainties are treated as risks.

The Bank will continue to monitor developments in the trade conflict, assess the  implications for Canadian inflation and provide updates as the situation evolves.”

What does this mean for you?

If you’re wondering how today’s rate hold might affect you, here’s a quick overview:

• Variable-rate mortgages: No immediate change. Your interest rate and monthly payments remain stable.
• Fixed-rate mortgages: No impact—your payments continue as scheduled.
• Lines of credit and other loans tied to prime rate: Interest costs remain unchanged for now.

What’s next for interest rates?

With so much uncertainty, the Bank of Canada says it will take a cautious approach to any future rate moves.

“The Governing Council will proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy,” the Bank stated.

But if growth slows as expected, many of the big banks still see roughly 50 basis points in additional rate cuts by year-end.

“Canada may have received a lower effective tariff rate than other countries, but the damage has already been done,” note TD economist James Orlando.

“Canada's economy has started to show signs of weakness, which we think will continue over the coming months,” he added. “This means the BoC should resume cutting rates at its next meeting on June 4.”