Bank of Canada Holds Rates at 2.25 Percent

(MENAFN) The Bank of Canada kept its benchmark policy rate unchanged at 2.25 percent on Wednesday, as policymakers navigated a deepening tension between sluggish economic growth and stubbornly rising inflation.

Bank Governor Tiff Macklem acknowledged the bind at a press conference, warning that the central bank faces a classic policy dilemma: raising rates to rein in inflation risks choking an already fragile economy, while cutting rates to stimulate growth could entrench inflation at persistently elevated levels. Holding steady, he said, represents the most balanced path forward given current conditions.

"However, uncertainty is unusually elevated, and the risks could shift. Monetary policy may need to be nimble," Macklem said.

The governor outlined two diverging scenarios that could force the bank's hand in either direction. Should the United States impose significant new trade restrictions on Canada, Macklem said a rate cut may become necessary to shore up economic growth. Conversely, if the Middle East conflict continues to escalate and higher energy prices begin bleeding into broader inflation, consecutive rate increases could be warranted.

The decision came against a backdrop of underwhelming economic data. According to a Bank of Canada news release, Canada's gross domestic product edged down 0.1 percent in the first quarter — a softer outcome than markets had anticipated. Consumer price index inflation climbed to 2.8 percent in April and is projected to hover around 3 percent in the near term before gradually retreating toward the bank's 2 percent target.

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