A decision by the Bank of Canada to hold its benchmark interest rate steady at 2.75 per cent could magnify the interest of corporate pension funds to pursue de-risking strategies, says Soami Kohly, fixed income portfolio manager at MFS Investment Management.
“We’ve seen [institutional investors] that have been de-risking their portfolio — in other words, moving more into bonds to remove the sensitivity to interest rates — [which], especially at the long end of the curve being very elevated, that opportunity is still there.
“There’s definitely been interest [from] institutional pension clients, for the ones who have not already de-risked, to continue.”
On Wednesday, the governing council at the Bank of Canada decided to hold the rate as it seeks to gain more information on the impact from U.S. trade policy. It also called the Canadian economy softer but not sharply weaker.
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“Uncertainty remains high,” Bank of Canada governor Tiff Macklem said in a press release following a second consecutive hold decision. Canadian economic growth reached 2.2 per cent, which the bank said was “slightly stronger” than its forecast.
Trade restrictions between Canada and the U.S. continue with a new 50 per cent tariff on steel and aluminum imports into the U.S., which took effect on June 4, doubling the rate previously introduced by President Donald Trump.
Despite China and the U.S. walking back extremely high tariffs, as well as the U.S. starting bilateral trade negotiations with other countries, the bank said there’s too much uncertainty and tariff rates remain well above the levels seen at the start of 2025.
Historically, the current market conditions would have made it likely for the Bank of Canada to consider cutting its interest rate, says Kohly. However, with the current uncertainty levels, he notes it’s likely the financial authority will wait to see how a federal budget impacts the slowdown and more reactions from trade negotiations with the U.S.
“As the economy progresses over the next couple of months, if things do slow down dramatically or if the fiscal response is not as stimulative as people expect, the Bank of Canada can always do a jumbo cut at the next meeting.”
The federal government is expected to table an annual budget sometime in the fall, compared to the usual spring delivery. The Bank of Canada’s next meeting date is set for July 30.
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