The Bank of Canada cut its key interest rate for the seventh consecutive time on Wednesday as the trade war threatens to plunge the economy into a recession.
The bank reduced the policy rate by 25 basis points, bringing it to 2.75 per cent from three per cent — a move that was widely expected by economists.
“In recent months, the pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence,” Bank of Canada governor Tiff Macklem wrote in a statement. “This is restraining household spending intentions and businesses’ plans to hire and invest.”
“Against this backdrop, and with inflation near the two per cent target, Governing Council decided to reduce the policy rate a further 25 basis points.”
Macklem emphasized that the bank will remain cautious about future rate cuts, as it cannot offset the destructive impacts of a trade war. “What it can and must do is ensure that higher prices do not lead to ongoing inflation.”
In a trade conflict, while the economy shrinks, retaliatory tariffs and a weaker Canadian dollar put pressure on consumer prices.
Most economists had believed the bank would pause cuts in March due to signs of rising inflation, but many changed their forecasts since the U.S. launched its trade war last week.
Effective Wednesday, U.S. President Donald Trump slapped a 25 per cent tariff on Canadian steel and aluminum after backing off his 50 per cent tariff threat.
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 StatCan economist noted that inflation would have been 2.7 per cent if not for Ottawa’s tax holiday.
The Bank of Canada will hold a press conference at 10:30 a.m. with governor Macklem and senior deputy governor Carolyn Rogers.
This is a developing story.
