The Bank of Canada is expected to make a quarter percentage point cut to its key interest rate Wednesday morning in the face of political and economic uncertainties in the form of elections and U.S. President Donald Trump’s tariff threats.
Experts largely believe the central bank, in its first rate announcement of 2025, will cut its overnight rate to three per cent, according to a Bloomberg survey of 22 economists.
Bank Governor Tiff Macklem is expected to emphasize the increasing trade tensions and imminent provincial and federal elections in explaining a likely decision to cut rates, while maintaining a cautious tone around the future of rate cuts this year.
“I expect the bank will lower interest rates by 25 basis points, and I think it’s completely justified in doing so,” said Royce Mendes, economist at Desjardins. “There are enough reasons to cut interest rates even without the threat of tariffs,” he said, citing rising unemployment and slowing population growth among the signs currently pointing to a weaker economic outlook.
If the U.S. broadly imposes tariffs on Canadian goods — which might come as soon as Feb. 1 — the Canadian economy could be pushed into a recession, experts says, which would require the central bank to boost economic stimulus by cutting rates further.
At the same time, if Canada decides to retaliate, it would increase prices for Canadian consumers, possibly leading the bank to consider rate pauses or even hikes going forward.
“I think that there is reason to believe that Donald Trump is going to make good on the threat of tariffs to Canada,” said Mendes, “and getting a little bit ahead of the game by lowering interest rates (by) a quarter-point is helpful because you’re starting from a position that is less restrictive on the economy.”
Along with the interest rate decision, the bank will also release its quarterly monetary policy report with updated forecasts for inflation and growth in the Canadian economy.
The announcement is scheduled at 9:45 a.m. followed by a live press conference at 10:30 a.m. held by Macklem and senior deputy governor Carolyn Rogers.
