🏦🇨🇦Cable FX Macro Weekly Note: BoC June Rate Decision

**As seen in Risk In The Week report 05/30/25, get full access now! cablefxm.co.uk

The BoC held its target for the overnight rate steady at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. This was the first pause after seven consecutive rate cuts since June 2024, bringing the rate from 5% to 2.75%, within the BoC’s estimated neutral range of 2.25%–3.25%. The decision to hold rates was driven by heightened uncertainty from U.S. trade tariffs, which pose both inflationary pressures (from higher import costs) and disinflationary risks (from slower economic growth). Inflation was at 1.7% in April 2025, but core CPI measures rose above 3%, the highest since March 2024, signaling persistent price pressures. The BoC emphasized maintaining price stability while acknowledging that monetary policy cannot fully offset trade war impacts.

As a reminder, Canada’s GDP grew at a robust 2.6% annualized rate in Q4 2024, but Q1 2025 growth slowed to an estimated 1.5%–1.8%, impacted by trade uncertainty, weaker consumer and business spending, and a pause in labor market recovery (unemployment at 6.6%).

Economists at BMO stand out of the consensus and expect the central bank to hold rates again this week, the median survey of economists sees a 25bps rate cut. BMO’s thinking derives from core inflation at 3% and the economy avoiding the worst case scenario (for now), they said this means that policymakers cannot afford to risk their credibility on inflation with a cut at this meeting. However, BMO warned that if growth slows as they expect in Q2 & Q3, look for cuts to resume in the back half of the year.