The Bank of Canada is expected to pause its interest rate cuts this week as signs of rising inflation, a softening job market, and shifting trade dynamics have added new layers of complexity to the economic outlook.
Market expectations for a rate cut have dropped significantly. As of Friday, interest rate swap markets priced in a 58% chance of a pause—an abrupt shift from earlier in the week when most bets were on another cut. This reflects a broader uncertainty, particularly as U.S. President Donald Trump reverses course on previously announced reciprocal tariffs, contributing to economic instability and making policy forecasting increasingly difficult.
“Policymakers want to retain some dry powder,” said Tony Stillo of Oxford Economics, pointing to the Bank’s need to preserve room for future stimulus in the event of a deeper downturn. Trade war volatility, especially with China, has already rattled consumer and business confidence.
Economists remain divided. David Doyle, Managing Director at Macquarie Group, noted that while a pause is now likely, ongoing uncertainty and softening fundamentals could still lead to further rate cuts in the near term. “If this period of uncertainty persists, the Canadian recession we forecast in March could deepen,” he said.
Adding to the uncertainty is a jump in inflation—February’s 2.6% rate was an eight-month high—and a significant loss of 32,600 jobs in March, the worst employment report in three years.
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