C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Keep Overnight Rate at 2.75 Percent Next Week, Leave Unchanged Until Next April

April 10, 2025 – The C.D. Howe Institute’s Monetary Policy Council (MPC) calls for the Bank of Canada to leave its target for the overnight rate, its benchmark policy interest rate, unchanged at 2.75 percent at its next announcement on April 16^th. The MPC further calls for the Bank to leave the target at 2.75 percent at its next meeting in June and subsequent settings to next April.

The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. MPC co-chair Jeremy Kronick, the Institute’s Vice-President, Economic Analysis and Strategy, chaired this meeting. MPC members make recommendations for the Bank of Canada’s target for the overnight rate at its upcoming announcement, the subsequent announcement, and the announcements six months and one year ahead. The Council’s formal recommendation for each announcement is the median vote of members attending the meeting.

While most of the discussions at this meeting focused on downside risks to the economy, members noted the difficulty in providing forward guidance on the overnight rate given all the uncertainty stemming from the continuing US tariff threats.

All but one of the seven MPC members attending the meeting recommended leaving the overnight rate at 2.75 percent next week. One member recommended a cut to 2.50 percent. Members were more evenly split on the June setting, with four members recommending holding at 2.75 percent, two voting for a cut to 2.50 percent, and one voting to further reduce the overnight rate to 2.25 percent. In October, the same four members who recommended holding at 2.75 percent continued to vote as such, one voter held at 2.50 percent, with two votes for 2.25 percent. By April 2026, all voters voted as they had in October, except for one member who called for a further cut to the overnight rate to 2.00 percent.

The most recent inflation reading was above target, with core measures also elevated. Members agreed that a big chunk of the increase in inflation was due to the end of the GST/HST tax holiday, and that the removal of the carbon tax and falling oil and gas prices were likely to send inflation back down at upcoming readings. Moreover, the Canadian dollar has strengthened of late, offsetting some of the inflation concerns stemming from the US-instigated trade war. However, members also noted that inflation expectations in Canada were elevated for both consumers and businesses.

At the time of the meeting, the US administration has shifted its focus away from Canada and other countries that were caught up in the “reciprocal tariffs” announcement last week, and is more concentrated on China. Members noted that this may be temporary, but at present the risk to the Canadian economy stems less from tariffs and more from the risk of a US recession, and a global recession more broadly because of a trade war between the two largest economies. Members were concerned about financial market volatility in both equity and bond markets and what impact this could have alongside a global slowdown in economic growth.

Members who voted for rate cuts in future settings were concerned by the effect all this uncertainty could have on business investment and consumer confidence. Canada’s position on the former has not been strong to begin with, and uncertainty at historical levels might act to drag this down further. Combined with a stronger-than-expected Canadian dollar, members argued there is space for the Bank of Canada to cut.

Members also discussed the uncertainty as to when and how much fiscal policy support the Canadian economy will receive. With an election coming up, members asked how long until we have a federal budget. Members agreed that – regardless of the incoming government – some support was coming to help buoy the Canadian economy. 

The views and opinions expressed by the participants are their own and do not necessarily reflect the views of the organizations with which they are affiliated, or those of the C.D. Howe Institute. Forecasters’ recommendations may differ from their predictions.

The MPC’s next vote will take place on May 29, 2025, prior to the Bank of Canada’s overnight rate announcement on June 4.

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For more information, contact: Mawakina Bafale, Research Officer, e-mail: mbafale@cdhowe.org and Lauren Malyk, Manager, Communications, e-mail: lmalyk@cdhowe.org