The Bank of Canada trimmed its key policy rate by 25 basis points to 2.75% on Wednesday, warning of a tariff crisis that could slow first-quarter GDP and disrupt the jobs market. Governor Tiff Macklem stated that the bank will focus on weighing downward pressures from weaker demand against upward pressures from inflation caused by higher costs.
The decision comes after months of inflation sitting at or around its 2% target, and it marks the seventh consecutive time the central bank has eased monetary policy. The Bank of Canada’s stance could signal that rates will not fall further, according to some economists.
A trade conflict between Canada and the US, fueled by President Donald Trump’s tariffs on steel and aluminum products, has alarmed companies and hurt business investment. The bank predicts a protracted tariff war would lead to poor GDP growth and high prices, making it challenging for policymakers to decide whether to hike or cut rates.
The Canadian dollar extended gains after the decision, while yields on two-year government bonds dropped. Economists predict a 45% chance of another rate cut in April. The Bank of Canada will assess both downward pressures from weaker demand and upward pressures from inflation caused by higher costs when making future decisions.
Inflation is expected to rise to around 2.5% in March, up from 1.9% in January, due to a short-term sales-tax break ending. The bank’s focus on rising inflation expectations has been described as hawkish by some economists.
Source: https://www.reuters.com/markets/rates-bonds/bank-canada-cuts-rates-counter-tariffs-will-be-cautious-about-future-moves-2025-03-12