Canadian interest rates on hold as uncertainty remains and inflation creeps up

Wesley Blight

June 4, 2025

Key takeaways

The Bank of Canada once again held its policy interest rate at 2.75% as core inflation creeps higher.
Despite de-escalation in trade tensions, uncertainty remains as negotiations are slow, tariffs remain high and political jostling continues.
In portfolios with a tactical asset allocation overlay, we have modestly increased our allocation to risk assets with a long overweight to global equities versus fixed income.

After seven consecutive rate cuts, the Bank of Canada (BoC) has held its policy interest rate at 2.75% for two meetings in a row. The decision was widely expected as uncertainty remains high despite de-escalation in trade tensions, particularly between China and the U.S. The situation remains touch-and-go—global tariffs remain higher now than at the end of 2024 and trade negotiations continue to be slow and offer no guarantees of a positive outcome.

Canadian growth slows, inflation creeps up

The global economy continues to display resilience, partly supported by the wave in economic activity trying to front-run tariffs. In Canada, economic growth came in at 2.2%, stronger than forecasted in April. Consumer price index inflation came down to 1.7%, but removing the effects of the federal consumer carbon tax suspension, inflation actually increased to 2.3% in April. “With uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on U.S. trade policy and its impacts,” said the Bank. At this time, we still believe the Bank will cut interest rates two more times this year, bringing the policy rate to 2.25%.

Our view on equities has modestly improved

Since the volatility we saw earlier in the year, stock markets have broadly recovered. However, financial assets remain sensitive to trade policy announcements.

Within our portfolios with a tactical asset allocation overlay, we have increased exposure to equities overall relative to fixed income and cash. As evidenced in the BoC’s comments, risks remain elevated and the outlook for the global economy and financial markets remains uncertain. However, given the expectations of further fiscal accommodation globally, combined with central bank policy rates broadly easing from prior highs, we have positioned portfolios to benefit from a resumption of the long-term growth trend for global equities. We will continuously monitor the evolving landscape to determine if strategic or tactical adjustments are needed to best position your portfolios for long-term success.

We continue to emphasize underlying strategies that give our portfolios access to high-quality companies with strong balance sheets, competitive advantages, and proven margin resilience during times of economic and market stress. Diversification—our strategic allocation across asset classes, sectors, and geographies—continues to help cushion portfolios against area-specific downturns while positioning to capture growth across various market segments.

The BoC’s next interest rate announcement is scheduled for July 30^th and will be accompanied by the latest Monetary Policy Report.

Wesley Blight

CFA, CIM, FCSI, is Vice President and Portfolio Manager with the Multi-Asset Management Team of Scotia Global Asset Management. He is responsible for private asset and multi-asset portfolio solutions.

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