OTTAWA — The Bank of Canada has decided to maintain its key interest rate at 2.75 percent for the second consecutive time, citing ongoing uncertainties related to trade tariffs and a resilient economy. This decision aligns with market expectations, as recent economic data has been stronger than anticipated.

In a news release, the central bank explained, "With uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, the governing council decided to hold the policy rate as we gain more information on U.S. trade policy and its impacts."

The Bank of Canada had previously held the rate steady in April, also due to trade uncertainties. The central bank indicated that the economic data since then has not created a sense of urgency for rate cuts. In April, the elimination of the consumer carbon price contributed to a drop in Canada’s inflation rate to 1.7 percent, although underlying price pressures remained firm, with core inflation measures rising.

The economy grew by 2.2 percent in the first quarter, slightly exceeding the Bank's forecasts, driven by increased exports ahead of potential tariffs. Governor Tiff Macklem noted that there was a "clear consensus" among council members to keep the policy rate unchanged, but acknowledged a "diversity of views" regarding future interest rate paths.

Macklem stated, "On balance, members thought there could be a need for a reduction in the policy rate if the economy weakens in the face of continued U.S. tariffs and uncertainty, and cost pressures on inflation are contained."

The trade conflict with the United States has complicated the central bank's efforts to maintain price stability while fostering economic growth. Recently, U.S. President Donald Trump signed an executive order that doubled tariffs on aluminum and steel imports to 50 percent, effective immediately. While Canada faces various tariffs from the U.S., many goods continue to cross the border duty-free under the North American Free Trade Agreement.

Macklem emphasized that due to the "unusual uncertainty," the governing council is adopting a less forward-looking approach regarding future rate decisions. Economists predict that the central bank may need to lower its policy rate later this year, as signs of economic weakness emerge, particularly in the labor market, where the unemployment rate rose to 6.9 percent in April.