Bank of Canada holds but further cuts likely

The Bank of Canada’s decision to keep interest rates at 2.75% today was not a big surprise given recent above-target core CPI gains, concerns about tariff-induced price rises and uncertainty about the extent to which the economy requires additional policy support in the face of ever-changing US trade policy. Nonetheless, the Bank’s communications were mostly dovish, which lends some support to our view that it will eventually cut interest rates to 2.0% this year, rather than stop at 2.25% as market pricing implies.