The Bank of Canada has stayed on the sidelines for its second rate setting in a row, so Canadians hoping for some interest rate relief are going to have to wait a little longer.
The central bank’s trendsetting Policy Rate remains at 2.75%.
In the comments that came with the rate hold Bank Governor Tiff Macklem noted that the Canadian economy is “softer, but not sharply weaker.” The Bank points out that the labour market is pulling back, particularly in trade-intensive sectors like manufacturing and wholesale. The unemployment rate rose to 7.0% in May.
Inflation data remains mixed. Headline inflation dipped to 1.7% in April but that was largely due to the elimination of the federal carbon tax. Measures of core inflation, which the Bank prefers to monitor, continue to increase and have risen above 3.0%, which is the top of the Bank’s target range. As well, business and consumer confidence is slipping, with growing expectations that inflation will worsen.
Inflation fears, and the overall economic jitters that are being felt everywhere, are being blamed on the continuing uncertainty about U.S. tariffs and trade policy. The erratic behaviour in Washington appears to have the Bank repositioning itself to respond to changes rather than trying to act as a guide through the economy.
“Faced with unusual uncertainty, [the] Governing Council is proceeding carefully, with particular attention to the risks. This means we are being less forward-looking than usual,” Macklem said.
The Bank of Canada’s next interest rate announcement is set for July 30.