BofA sees strong Q1 growth keeping Bank of Canada on hold in June
Investing.com -- Bank of America (NYSE:BAC) Securities expects the Bank of Canada to hold its policy rate at 2.75% in June, pointing to stronger-than-expected growth in the first quarter of 2025. In a research note published Friday, the firm said resilient GDP figures and sticky core inflation suggest the central bank will refrain from easing monetary policy for now.
Canadian GDP rose 2.2% quarter-over-quarter annualized in Q1, topping both BofA’s and the market’s 1.7% forecasts. The outperformance was driven by a sharp 6.7% increase in exports, which analysts attributed to frontloading ahead of potential U.S. tariffs.
“Today’s activity print not only showed that consumption weathered the initial shock from the trade war, but also that monthly GDP is holding up,” said Carlos Capistran, BofA’s LatAm and Canada economist. He added, “We expect the Bank of Canada (BoC) to leave its policy rate unchanged at 2.75% on June 4.”
BofA revised its 2025 GDP forecast for Canada to 1.4%, up from 1.0%, citing the economy’s underlying strength and revisions to 2024’s baseline data. The firm maintained its 2026 growth forecast at 1.5%, while noting that risks remain balanced amid ongoing trade tensions and potential fiscal and monetary stimulus.
Despite growth in net exports, final domestic demand declined by 0.1%, weighed down by a 3.0% drop in business investment. Consumption edged up just 0.8%, a performance Capistran suggested could reflect a “Buy Canadian” sentiment emerging amid cross-border trade friction.
March GDP rose 0.1% month-over-month, in line with expectations, with broad-based gains across both goods and services sectors. Initial estimates for April show similar momentum, reinforcing BofA’s view that the economy remains more resilient than previously anticipated.
“Looking ahead, we believe that the outlook will become clearer, and that core inflation will be tamed by economic weakness,” Capistran said. He expects the BoC to begin cutting rates later this year, forecasting a year-end policy rate of 2.00%.
While growth appears to have firmed for now, the strength of consumer behavior and export dynamics will be closely monitored as the trade conflict with the U.S. continues to evolve. BofA’s outlook suggests the BoC remains in wait-and-see mode until further clarity emerges.
