Bank of Canada Holds Rates at 2.75% After Q1 GDP Surge

The Bank of Canada is widely expected to hold its policy interest rate steady at 2.75% in its upcoming meeting, following stronger-than-anticipated economic growth in the first quarter of 2025. Canada's GDP grew at an annualized rate of 2.2%, driven largely by a surge in exports and inventory building as businesses rushed to pre-empt U.S. tariffs, while domestic demand and household spending remained weak. This unexpected growth, however, is viewed by many economists as temporary and influenced by tariff-related distortions, leading to caution about cutting rates despite earlier market expectations for reductions. Core inflation remains persistently elevated, reinforcing the central bank's cautious approach to monetary easing in the near term. Although the economy outperformed initial forecasts, risks from U.S. trade policies and weakened domestic indicators suggest that further rate cuts may still occur later in the year. Overall, the Bank of Canada is balancing upside inflation risks against downside growth risks amid uncertain trade conditions and mixed economic signals.