During its meeting on June 4, the Bank of Canada opted to keep interest rates steady at 2.75%. The possibility of a rate cut by July 30 is currently at 20%, with less than one full rate cut anticipated by the end of the year.

Canadian and US officials set a 30-day deadline for finalising a trade deal, which could affect future decisions by the central bank. The meeting noted that growth in exports might slow due to tariffs and uncertainties. Prolonged inflationary pressures might stay as consumers and businesses adjust to global trade changes.

monitoring inflation

The pass-through of rising input costs to consumers is challenging to monitor. The Bank’s council emphasised the importance of monitoring inflation across different components of the consumer price index.

Though a major global trade war seems less likely, inflation expectations in the short term have risen. While first-quarter business investment showed positive signs, its long-term viability is uncertain. If tariffs and uncertainties continue and cost pressures are manageable, interest rates might need further reduction.

Overall, there are no definitive indications from this discussion that would markedly change the Bank of Canada’s current interest rate expectations.

The Bank of Canada’s decision to leave its policy rate at 2.75% reflects a wider caution among central banks watching inflation settle into new patterns amid erratic trade movements. Though it held off from any adjustments this time, markets have already started to reprice expectations, trimming the chance of a cut by July’s end to roughly 20%. What’s more telling, albeit indirect, is that markets now see less than one move lower before December closes, mirroring a wariness over shifting inflation paths and external strain.

trade implications

A diplomatic push on trade between Canada and the United States, solidified in a new 30-day target window, adds some tension to the mix. Any deal—or lack thereof—could shape the central bank’s scope for manoeuvring on rates. For now, policymakers appear to be hedging their bets. Trade friction, if drawn out, would likely strain export growth even more than already projected, tightening margins and raising prices through supply networks already stretched thin.

Policymakers highlighted their difficulty in capturing the true extent of business cost increases passed through to households. That detail matters, especially in this setting, because rising costs don’t neatly float into headline inflation. Instead, they filter in uneven waves—some prices jump quickly, others lag, and not everything responds to policy in uniform ways.

While nobody forecasted an escalation into a full-scale trade war, shorter-term inflation expectations have clearly been nudged upward, showing that like us, market participants are eyeing the same data points with growing restlessness. Earlier signs of momentum in business investment—the sort governments often hope will underpin medium-term growth—came with caveats. Underlying metrics hinted that much of it may lack staying power if trade instability lingers.

From our view, if tariff burdens increase but firms can still ride them out without marking up their products heavily, central banks may have space to lower rates further. But there’s a threshold. Too strong a reaction from firms—whether layoffs or price hikes—may force monetary policymakers to pause.

Comments made during the June meeting didn’t hint at a pivot in strategy. Instead, the tone suggests a steady hand, perhaps with readiness to adapt if more concrete evidence appears. For derivative strategies, this makes the next few data prints—particularly around inflation components and forward-looking investment intentions—all the more sensitive.

With limited room for sudden moves, positioning should reflect waning rate-cut probabilities and tighter fiscal-policy interactions. The widening data-dependency fed into council remarks, and that’s unlikely to reverse unless key components—such as domestic inflation or external trade flows—change markedly. For now, steady monitoring remains essential and any biases should be matched closely with data consistency, especially in the lead-up to the next scheduled policy announcement.

Create your live VT Markets account and start trading now.