After seven consecutive rate cuts, the Bank of Canada decided to hold its key interest rate — and many are asking why.
The short answer? Uncertainty. While inflation continues to cool and the economic outlook looks increasingly bleak, the Bank has its reasons for hitting pause — and they’ve made it clear they’re more worried about long-term inflation than a short-term slowdown.
Let’s break it down.
Why Did They Hold the Rate?
Even though we’ve seen falling inflation numbers and signs of slower economic growth, the Bank is staying cautious. Here’s why:
1. Rate Cuts Take Time
The impact of previous cuts isn’t instant. The Bank of Canada has said that stimulus from those earlier moves can take 12 to 24 months to fully work through the economy. That means we haven’t yet seen the full effects of those rate reductions — and they don’t want to overdo it too soon.
2. Inflation Pressures Haven’t Disappeared
While inflation has eased, global supply chain issues and new tariffs are putting upward pressure on prices again. These disruptions make goods more expensive — which is exactly what the Bank wants to avoid.
3. They’re Focused on Stability Over Speed
Put simply: They’d rather be late to stimulate than risk doing too much too soon. In their view, overstimulating could undo the progress they’ve made on inflation. They’re aiming for balance — and for now, that means waiting.
What’s Next?
Markets are still pricing in two more rate cuts in 2025, with the next one most likely coming in July. But as we all know, things can change — fast. Between global events, shifting data, and market sentiment, this is a moving target.