As Bank of Canada holds rates, experts say a cut alone won't stop an economic slowdown

Jenna Benchetrit · CBC News

· Posted: Jun 04, 2025 3:26 PM EDT | Last Updated: June 4

The Bank of Canada held involvement rates astatine 2.75 per cent connected Wednesday, pointing to a mixed container of unexpectedly beardown information and the uncertainty of U.S. tariffs arsenic crushed for the clasp — and immoderate experts say, going forward, complaint cuts unsocial won't beryllium capable to halt an economical slowdown.

In his opening remarks to reporters, politician Tiff Macklem characterized the Canadian system arsenic "softer but not sharply weaker" and said the cardinal bank's governing assembly was successful statement astir today's complaint decision. The determination marks the 2nd consecutive clasp since March.

Economists had mostly pivoted from archetypal expectations the cardinal slope would chopped the involvement complaint by 25 ground points aft the first-quarter GDP came successful astatine an annualized complaint of 2.2 per cent past week, which was stronger than anticipated.

That spot was mostly owed to a surge successful exports, with businesses stocking up connected inventory earlier U.S. President Donald Trump's archetypal circular of tariffs went into effect successful the spring.

But Macklem was speedy to curb immoderate enthusiasm astir the latest GDP reading, saying that "the archetypal 4th borrows economical spot from the future, truthful the 2nd 4th is expected to beryllium overmuch weaker."

WATCH | The interaction of caller U.S. tariffs:

Likewise, caller header ostentation showed that terms maturation had slowed to 1.7 per cent successful April, mostly owed to the extremity of the user c tax. However, halfway ostentation — the Bank of Canada's preferred measurement of terms growth, due to the fact that it strips retired assemblage volatility and one-time taxation changes — crept up supra 3 per cent, good beyond the Bank of Canada's people of 2 per cent.

"That has got our attention," Macklem told reporters, saying the uptick "does marque you deliberation that underlying ostentation could beryllium a small firmer than we thought."

Rate chopped unsocial won't buoy lodging market, says broker

Even if the cardinal slope had chopped rates by 25 ground points, it wouldn't person overmuch of an effect connected housing, said Toronto existent property broker John Pasalis successful an interrogation with CBC News.

"The lodging marketplace close present is stalling mostly due to the fact that of each of the economical uncertainty," Pasalis said. "Lower rates are not going to propulsion radical backmost into buying a location if they're disquieted they're going to suffer their jobs."

The cardinal slope noted Wednesday that nationalist lodging enactment had declined successful the archetypal quarter, mostly due to the fact that of a driblet successful the resale market. National prices are down somewhat connected a year-to-year basis, too.

Pasalis said helium doesn't expect enactment to prime up this summer, though that could alteration by the fall, should the Bank of Canada opt to chopped rates to 2 per cent implicit the adjacent respective meetings. 

Still, little involvement rates request to beryllium matched with "more clarity connected the economy, connected the commercialized war," helium said, to stimulate the lodging market. 

"I don't deliberation it's an affordability contented close now. I deliberation the large contented is conscionable deficiency of confidence."

Small businesses watching for much than cuts

Andreea Bourgeois, manager of economics astatine the Canadian Federation of Independent Business successful Moncton, N.B., said she thinks tiny businesses are astir apt "OK" with the determination to clasp the involvement rate.

Rate cuts ever assistance tiny businesses, Bourgeois said. What they're truly looking for astatine this point, however, is "a motion that the slope believes the system tin turn and a spot of a propulsion for businesses to really put and to not laic disconnected people," she said.

"'We privation businesses to spend, we privation businesses to invest, we privation to stimulate demand. [That's] the motion that would beryllium ace important for tiny businesses."

The Bank of Canada noted successful its first-quarter concern outlook survey, released successful April, that businesses had expressed little assurance successful the absorption of the economy, with the firms surveyed little anxious to put and prosecute due to the fact that of the commercialized struggle with our U.S. neighbours.

"They're not looking yet to chopped down connected their concern products. They're not looking to laic disconnected successful mass," acknowledged Bourgeois. "But you don't spot the different behaviour, either," she said, referring to concern and hiring, which she argued shows a deficiency of optimism successful the economy.

Other manufacture leaders agreed that businesses are looking for much than a complaint chopped close now.

Flavio Volpe, president of the Automotive Parts Manufacturers' Association successful Toronto, said that his enactment was hopeful. "But also, frankly, a complaint alteration isn't going to get america retired of the problem," helium said.

Dennis Darby, president and CEO of the Canadian Manufacturers and Exporters, shared a akin sentiment, saying it's "critically important" for Canada to propulsion for certainty successful its narration with the U.S.

That won't travel from the Bank of Canada, helium said: "That's evidently the government's responsibility."

'Less forward-looking than usual'

The cardinal slope chose a cautious attack connected Wednesday, and its determination to clasp disconnected connected a complaint chopped is simply a risky one, said Royce Mendes, managing manager and caput of macro strategy astatine Desjardins.

The clasp sends the connection that there's "a reluctance to enactment the economy," and could pb businesses and households to marque antithetic fiscal and concern decisions, Mendes said.

"They commencement to propulsion backmost due to the fact that they interest that there's nary information nett successful sight. Or businesses determine not to put much due to the fact that they think, 'Well, nary one's present to assistance america with this commercialized war.' And I deliberation those are the risks that the Bank of Canada has taken by holding rates dependable today."

Macklem didn't regularisation retired a complaint chopped astatine the cardinal bank's gathering successful July, should economical maturation dilatory and ostentation pressures ease. But helium said the governing council, portion successful statement astir Wednesday's decision, had truthful acold shared a "diversity of views" erstwhile it came to the future.

WATCH | Will uncertainty tilt the Bank of Canada toward a aboriginal complaint cut?:

"Faced with antithetic uncertainty, [the council] is proceeding carefully, with peculiar attraction to the risks," Macklem said successful his remarks. "This means we are being little forward-looking than usual."

Leslie Preston, managing manager and elder economist astatine TD Economics, said that the uptick successful halfway ostentation — competing with occupation loss, weaker request successful the home system and a brushed lodging marketplace — enactment the Bank of Canada "in a bind."

"We expect that barring a commercialized dialog occurrence with the Trump administration, Canada's system is apt to extremity into recession this year, and much involvement complaint cuts volition beryllium required," Preston wrote.