The Bank of Canada is poised to cut its key interest rate for the seventh consecutive time on Wednesday as the tariff war with U.S. President Donald Trump threatens to plunge Canada into recession.
The central bank is expected to reduce the policy rate by 25 basis points, according to a Bloomberg survey of economists, reducing it to 2.75 per cent from three per cent.
Since its rate announcement in January, bank governor Tiff Macklem warned that tariff uncertainty is already hurting the economy and that “trade friction with the United States is a new reality.”
While most economists had believed the bank would pause cuts in March due to signs of rising inflation, many have changed their forecasts since the U.S. launched its trade war last week.
“Look for central bankers to highlight that they stand ready to further support the Canadian economy with additional rate cuts,” wrote Desjardins economist Royce Mendes in a note to clients.
But the bank will also likely emphasize that rate cuts going forward will depend on what happens to the rate of inflation during the trade war, said Mendes, as retaliatory tariffs and a weaker Canadian dollar would put pressure on consumer prices.
January inflation rose to 1.9 per cent, according to Statistics Canada.
While that’s below the central bank’s two per cent target, a StatsCan economist noted that inflation would have been 2.7 per cent if not for Ottawa’s tax holiday.
The Bank of Canada will announce the rate decision in a release at 9:45 a.m. followed by a press conference at 10:30 a.m.
This is a developing story.
