Bank of Canada Faces Risky Interest Rate Decision This Week
The upcoming rate decision of Bank of Canada on Wednesday has become one of its most delicate in recent years. With inflation pressures heating up, but signs of an economic cooldown looming, economists are split on whether Governor Tiff Macklem should cut rates now or wait until July.
Why It’s a Balancing Act
In normal times, central banks aim to fight inflation with higher interest rates or support the economy with cuts. But these aren’t normal times.
On one hand, Canada’s GDP grew 2.2% in Q1, defying expectations of a tariff-induced slowdown. That surprise led many major banks—including BMO, CIBC, and RBC—to delay their expected rate cut predictions.
But this growth may be misleading. Analysts warn the uptick came largely from businesses stockpiling goods before new U.S. tariffs hit. That means the stronger economic data may not last, especially as global trade tensions worsen.
What Makes June a “Risky” Time to Act
According to Andrew DiCapua of the Canadian Chamber of Commerce, the BoC faces “mission impossible” conditions. Inflation remains sticky, while consumer confidence and hiring plans have started to slip. The manufacturing sector lost 31,000 jobs in April, and unemployment edged up to 6.9%.
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Cutting rates too soon could risk inflaming inflation. But waiting too long could choke off economic growth just when Canadian businesses and households are feeling shaky.
“There’s no obvious signal from the data,” said BMO’s Doug Porter. “But it does show resilience for now.”
Why Most Banks Expect a Hold This Week
Just a month ago, most Big 6 banks were calling for a rate cut in June. Now, they’ve pivoted.
- BMO, CIBC, National Bank, and RBC all now expect a hold this week.
- Scotiabank, which had always called for a hold, doubled down. Chief economist Derek Holt pointed to April inflation figures that came in hotter than expected, reinforcing caution.
The core issue? Inflation still sits above 3%. With global supply chains under threat from new tariffs, price pressures may not cool quickly.
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Could a Delay Hurt Consumer Confidence?
While many economists agree a cut will come—just not yet—some argue the psychological impact of waiting too long could hurt.
“If the Bank doesn’t cut, it signals to consumers and businesses that the Bank doesn’t have their back,” said Stephen Brown of Capital Economics.
He believes a modest cut this week could act as insurance against future economic weakness, while boosting sentiment during uncertain times.
The Most Likely Scenario?
Markets now see just a 32% chance of a cut this week, but a 75% chance of a July cut. That aligns with the cautious tone from Macklem, who said last month the “next few months will be quite a bit weaker.”
Bottom line: the Bank of Canada is walking a tightrope. Act too fast, and inflation may surge. Wait too long, and the economy could slide deeper into trouble.
What do you think—is it better for the Bank of Canada to cut rates now or wait until July?
More…
- https://www.canadianmortgagetrends.com/2025/06/bank-of-canada-expected-to-hold-rates-steady-wednesday-as-economy-outperforms
- https://www.rmoutlook.com/the-latest/bank-of-canada-expected-to-hold-key-rate-after-surprise-q1-gdp-jump-10740593
- https://ca.finance.yahoo.com/news/mission-impossible-why-bank-canada-080012384.html
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