Bank of Canada cuts interest rate to 2.75% as country faces 'new crisis' from tariffs
On March 12, 2025, the Bank of Canada (BoC) announced a 25 basis point reduction in its benchmark interest rate, bringing it down to 2.75%. This marks the seventh consecutive rate cut, a response to escalating trade tensions with the United States that are casting a shadow over Canada's economic landscape.
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Trade Tensions and Economic Uncertainty
The recent imposition of U.S. tariffs on Canadian steel and aluminum has introduced significant uncertainty, affecting both consumer and business confidence. Governor Tiff Macklem highlighted that while the Canadian economy concluded 2024 on a strong note, it now faces a "new crisis" due to these trade conflicts. This uncertainty is leading to reduced household spending and hesitancy among businesses regarding investments and hiring.
WSJ.COM
Inflation and Monetary Policy Considerations
Despite the rate cut, the BoC remains cautious about future monetary policy adjustments. The central bank aims to balance the risks of rising inflation, driven by increased import costs and a depreciating Canadian dollar, against the potential for weakened economic demand. Governor Macklem emphasized the need for careful evaluation of these factors before proceeding with further rate changes.
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Market Reactions and Future Outlook
Financial markets have responded to the BoC's decision with a mix of caution and optimism. The Canadian dollar experienced a slight uptick against the U.S. dollar following the rate cut, reflecting investor sentiment that further easing may not be imminent. Analysts suggest that the BoC's future rate decisions will heavily depend on incoming economic data and the evolving trade situation.
In summary, the Bank of Canada's recent rate cut underscores the challenges posed by ongoing trade disputes and their impact on the nation's economic outlook. As the situation develops, the central bank's cautious approach aims to navigate the delicate balance between supporting growth and controlling inflation.
For more detailed information, you can refer to the original article on CBC News:
Bank of Canada cuts interest rate amid trade tensions.
The Bank of Canada decided to abandon its conditional pause on interest rates by raising its target for the overnight lending rate by 25 basis points to 4.75% on Wednesday, June 7, while at the same time continuing its policy of quantitative tightening. The overnight rate now sits at its highest level since 2001. The Bank indicated that while global consumer price inflation has been coming down due to lower energy prices compared to last year, underlying inflation trends remain stubbornly high. They also noted while economic growth worldwide has softened due to higher interest rates, other global central banks have signalled they may need to further tighten monetary policy to restore price stability. According to the Bank, excess demand in the Canadian economy looks to be more persistent than anticipated. The Canadian economy grew stronger than expected in the first quarter of 2023, with demand for consumer goods and services continuing to increase. Additionally, spending on interest-sensitive goods and housing market activity have picked up. The labour market remains tight with higher immigration and participation rates expanding the supply of workers, with new workers getting quickly hired, reflecting continued strong demand for labour. The Bank also noted consumer price index (CPI) inflation ticked up in April to 4.4%, the first increase in 10 months, with prices for a broad range of goods and services coming in higher than expected. The Bank continues to expect CPI inflation to ease to around 3% in the summer but is concerned about getting materially stuck above the 2% target. Looking ahead, the Bank noted they’ll continue to assess the dynamics of core inflation and the outlook for CPI inflation by “evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the inflation target.” The Bank of Canada ’s next scheduled interest rate announcement will be on July 12, 2023, at which time it will publish its next Monetary Policy Report. Learn more on creastats.ca . Source: By Bank of Canada Raises Interest Rate Again - CREA .
The Bank of Canada once again decided to maintain its target for the overnight lending rate at 4.5% while continuing its policy of quantitative tightening. The Bank indicated that global economic growth has been stronger than expected but will weaken due to tightening monetary policy in many countries. The Bank made special note of an expected slowdown in US sectors that will have an impact on Canadian exports. According to the Bank , first quarter economic growth in Canada exceeded expectations, adding that labour shortages are starting to ease due to strong population growth. The Bank noted that housing activity remains subdued and consumer spending is expected to moderate as more households renew their mortgage at higher rates. The Bank projects Canadian GDP growth of 1.4% in 2023, 1.3% in 2024, and 2.5% in 2025. The Bank expects CPI inflation to moderate to around 3% by the middle of 2023 and continue to decline to its 2% target by the end of 2024. However, the Bank noted that service price inflation and wage growth as two risks to its inflation projections that could provide some difficulty in reaching its target and remains prepared to raise the policy rate further if needed to return to its target. The Bank of Canada’s next scheduled interest rate announcement will be on June 7, 2023. The Bank will publish its next Monetary Policy Report on July 12, 2023. Source: Provided by Bank of Canada Maintains Overnight Rate - CREA .
