Will the Bank of Canada keep rates on hold next week?
Canada’s economy grew at a faster rate than expected in the first quarter, expanding by 2.2% in news that’s likely to keep the Bank of Canada in wait-and-see mode as it weighs up interest rate cuts.
A report by Statistics Canada on Friday morning showed gross domestic product (GDP) exceeded the 1.7% growth anticipated by economists, although January contributed to most of that strength as US companies upped purchasing ahead of President Trump’s tariffs.
Spending by households and businesses has remained surprisingly steady, even despite what Royal Bank of Canada (RBC) described as “worrying signs of softening” in national labour markets in April.
RBC economists Nathan Janzen and Abbey Xu said this week’s first-quarter GDP reading appeared to strengthen the case for the Bank of Canada to keep interest rates on hold when it meets next Wednesday (June 5).
“The Bank of Canada’s interest rate decision next week will still be a close call, but with economic data holding up better than feared – and inflation in April surprising broadly on the upside once controlling for the removal of the consumer carbon tax from energy products – a second consecutive hold on the overnight rate looks more likely than a cut at this stage,” they wrote.
Bank of Montreal (BMO) chief economist Doug Porter said GDP figures were “sending no obvious distress signals so far in 2025” and that Bank policymakers will now probably make their next rate cut in July rather than June.
Canada’s unemployment rate has risen to 6.9% amid the US tariff chaos, up from 6.7% in March, with Ontario’s automaking industry left reeling from a wave of levies introduced by Trump.
StatCan said the economy likely grew by 0.1% in April after eking out growth by the same amount in March, cancelling out a 0.2% February contraction. Mining, quarrying, and oil and gas extraction all contributed strongly to that March growth.
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