Reading the signs: Is the Bank of Canada preparing to ease its foot off the brake?
Slowing Momentum: A Pivotal Spring for Canadian Monetary Policy
As we enter Q2 of 2025, the Bank of Canada (BoC) finds itself navigating familiar yet dangerous waters: a weakening job market, fragile economic momentum, and inflation that, while trending downward, is not yet tamed. Canada’s economy is still moving forward, but not with much strength—and it could lose steam quickly if current trends persist.
In a recent statement, BoC Governor Tiff Macklem acknowledged that April’s policy meeting will be “live,” signalling that a long-awaited rate cut is now on the table—if future data confirms that the economy is slowing and inflation is easing.
Canada’s key interest rate has remained at a two-decade high of 5.0% since July 2023. Initially introduced as an aggressive counter to persistent inflation, this rate has increasingly come under scrutiny as some parts of the economy, like jobs and consumer spending, are starting to weaken.
Labour Market Softens: A Green Light for Easing?
One of the most closely watched indicators in recent weeks has been the labour market. February data showed a net gain in jobs, but it was largely part-time and public sector-driven. The unemployment rate has edged upward to 6.1%, the highest since January 2022. More telling is the trend: private sector hiring is cooling, wage growth is flattening, and job vacancies are down.
For a central bank with a dual focus on inflation and employment, these shifts suggest that the economy is absorbing the impact of previous rate hikes. The question is no longer if monetary policy is restrictive enough, but how long the Bank of Canada can afford to maintain this level without triggering unnecessary pain.
Inflation: The Stubborn Middle Ground
Inflation has decelerated from its 2022 peak, falling into the BoC’s target range of 1–3% in recent months. However, core inflation—excluding fast-changing prices like food and energy—has stayed stubbornly above 3%.
Bringing inflation down that final step is proving difficult—mainly because housing costs remain high and keep pushing prices up. The BoC has repeatedly warned that cutting too early could reignite inflationary pressures, compromising the gains made over the past year.
Still, with the consumer increasingly stretched and business investment slowing, the risks of holding too long may soon outweigh the risks of moving too early.
Implications for the Canada–Hungary Business Corridor
For companies operating between Canada and Hungary—particularly those in capital-intensive sectors like energy, aerospace, manufacturing, and logistics—BoC’s rate path is more than macroeconomic background noise.
- Currency and capital flows: A rate cut could lead to a weaker Canadian dollar, potentially impacting repatriation strategies or pricing models for multinationals operating in forint or euro-denominated environments.
- Investment appetite: Lower borrowing costs could renew Canadian interest in outbound investment—including in Central and Eastern Europe—after nearly two years of caution.
- Labour and operations: Canadian-based firms with shared services or back-office operations in Hungary might anticipate smoother HR planning if domestic wage pressure eases.
In short, a shift in the BoC’s stance could mark a strategic inflection point for businesses evaluating cross-border decisions.
Looking Ahead: Strategic Patience in an Uncertain Climate
Whether the Bank of Canada moves in April or waits until summer, it’s increasingly clear that the peak of this tightening cycle is behind us. What lies ahead is a delicate calibration: easing without encouraging inflation, and stabilizing growth without stoking new vulnerabilities.
For Canadian–Hungarian businesses, this spring may serve as a signal: to revisit forecasts, update risk models, and prepare for a potential turn in the monetary tide.
Written for the Canadian Chamber of Commerce in Hungary News Section, April 2025
