The Bank of Canada left its benchmark interest rate unchanged at 2.25% on Wednesday, pausing after a series of cuts. Governor Tiff Macklem dismissed growing recession worries, signaling the central bank sees the economy on a steadier footing than many private forecasters expect.
Why the hold
Policymakers opted to keep borrowing costs steady after data showed inflation still hovering just above the bank's 2% target and consumer spending holding up better than anticipated. The decision marks the first pause in six months. The bank's governing council wanted more time to assess how earlier rate reductions were filtering through to housing, business investment, and retail sales before making another move.
Macklem's recession call
Speaking to reporters after the decision, Macklem pushed back against the idea that Canada is headed for a downturn. He pointed to a tight labour market and resilient household balance sheets as reasons the economy could avoid a contraction. Macklem acknowledged that growth has slowed, but he described the current period as a soft patch, not the beginning of a recession. The bank's own projections show the economy expanding at a modest pace through the middle of the year.
The hold leaves the policy rate at a level the bank considers restrictive, meaning it's still designed to cool demand. The next rate announcement is scheduled for April 16. Most analysts expect another hold, though a minority sees a quarter-point cut if the labour market weakens or inflation drops faster than forecast. The bank said it will remain data dependent, with particular attention to wage growth and services inflation.
Macklem did not rule out further cuts later in 2025, but he stressed that the bank wants to see sustained progress on core inflation before easing again. He also noted that geopolitical uncertainties, including U.S. trade policy and energy prices, could tilt the outlook either way.
The Canadian dollar edged up slightly against the U.S. dollar after the announcement, while bond yields slipped, reflecting market relief that the bank didn't deliver a surprise cut.
