In these times of uncertainty, it was fairly certain that the Bank of Canada was going to put a hold on interest rates originally expected to continue their downward trend…and that’s what the Bank did.
In keeping its key policy rate at 2.75 per cent for the Bank’s scheduled April announcement, the press conference included this explanation from Bank of Canada Governor Tiff Macklem:
“A lot has happened since our March decision five weeks ago, but the future is really no clearer. We still do not know what tariffs will be imposed, whether they'll be reduced or escalated and how long all of this will last. That means being less forward-looking than usual until the situation is clearer.”
Before this announcement, the interest rate had been lowered seven consecutive times since last June.
Instead of projecting long-term economic forecasts — “Forecasts for economic growth are of little use as a guide to anything,” explained Macklem – the Bank identified two possible scenarios.
Instead of projecting long-term economic forecasts — “Forecasts for economic growth are of little use as a guide to anything,” explained Macklem – the Bank identified two possible scenarios.
One, the tariffs would eventually be withdrawn through negotiations, the GDP would stall, and the economy would slowly expand, with inflation dropping — temporarily — below the two per cent target.
Two, the tariffs would lead to a long-lasting global trade war, the Canadian economy would go into a year-long recession, and inflation would rise to 3.5 per cent next year.
Added Macklem: “We have got to be flexible and adaptable.”
The next scheduled interest-rate announcement is June 4.