The Bank of Canada has announced its seventh consecutive interest rate cut, lowering its overnight rate to 2.75% amid ongoing uncertainty over U.S. trade tariffs. The central bank’s decision, widely anticipated by economists, aims to mitigate the economic impact of tariff-related turmoil, which has unsettled businesses and consumers alike.
“In recent months, the pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence,” said Tiff Macklem, Governor of the Bank of Canada, during a press conference in Ottawa. “This is restraining household spending intentions and businesses’ plans to hire and invest.”
Economic Risks Loom Amid Trade Uncertainty
The Bank of Canada has warned that if the U.S.-Canada trade war escalates, the consequences for the Canadian economy could be severe. The central bank’s estimates indicate that a prolonged trade conflict could:
- Reduce Canada’s economic growth by 3% over the next two years.
- Cause business investment to decline by 12% in the first year.
- Lead to an 8.5% drop in exports.
“Uncertainty alone is already causing harm,” Macklem emphasized, highlighting the strain businesses are under due to unpredictable trade policies.
Survey: Businesses and Consumers Brace for Higher Costs
The Bank of Canada also released the results of recent business and consumer surveys, conducted between January 29 and February 28, which reflect growing concerns about economic stability:
- 72% of consumers expect costs to rise due to tariffs.
- 47% of businesses foresee increased operational costs.
- 48% of businesses plan to cut investment spending.
- 40% of businesses intend to scale back hiring efforts.
- Only 2% of businesses reported plans to increase investments.
Macklem warned that weaker business investment could lead to a higher unemployment rate, particularly if these trends continue into the second quarter of the year.
Inflation Expected to Rise Amid Economic Pressures
Inflationary pressures are also mounting. The Bank of Canada projects inflation to hit 2.5% in March, following the expiration of the federal GST/HST tax break. However, Macklem cautioned that the effects of tariffs on inflation will be more challenging to assess, given multiple contributing factors such as:
- A weakening Canadian dollar.
- Increased costs due to retaliatory tariffs.
- A decline in consumer and business confidence.
“Some prices are going to go up—we can’t change that. What we don’t want is these initial price increases causing widespread inflation,” Macklem noted. “That’s what we can’t let happen.”
Future Policy Uncertain as Rate Cuts Continue
Despite ongoing economic concerns, the Bank of Canada has opted not to provide forward guidance, a policy decision made in January. Instead, the central bank will continue to monitor inflation and assess both downward pressures from slowing growth and upward pressures from higher costs.
Economists remain divided on whether additional rate cuts are on the horizon. Randall Bartlett, deputy chief economist at Desjardins Group, stated that market reactions indicate an April rate cut is “no slam dunk.”
Meanwhile, Tony Stillo and Michael Davenport, economists at Oxford Economics Canada, believe further cuts could be possible but unlikely to go beyond the neutral range of 2.25%-3.25%.
“We can’t entirely rule out a couple more 25-basis-point cuts to cushion against the negative impacts of ongoing uncertainty,” they wrote in a note. “But we think it’s very unlikely the bank will lower rates below the bottom-end of its neutral range estimate given the ongoing U.S.-Canada trade war.”
As economic uncertainty persists, Canadians are bracing for rising costs, weakened investment, and potential job market disruptions. The Bank of Canada remains committed to monitoring inflation and economic performance closely, with future rate decisions dependent on trade developments and overall economic stability.
