The Bank of Canada has lowered its key lending rate in a bid to help the slowing economy.
Ottawa: The Bank of Canada yesterday lowered its key lending rate by 25 basis points to 2.75 percent, while warning “heightened trade tensions” could derail a strong economic start to the year.
“The Canadian economy entered 2025 in a solid position,” with low inflation and “robust GDP growth,” the bank said.
“However, heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada.”
The central bank’s seventh consecutive rate cut was widely expected after its efforts to throttle price increases with higher interest rates appeared to have paid off.
Inflation is now at 1.9 percent, but could rise to 2.5 percent in March, the bank forecast.
Economic growth has recently come in stronger than expected, it said, but “pervasive uncertainty created by continuously changing US tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest.”
These negative impacts have been partially offset by a surge in exports in advance of tariffs being imposed, the bank added. Bank of Canada governor Tiff Macklem said interest rates were lowered to help cushion the impact of trade volatility.
But, he added, the bank would “proceed carefully with any further changes to our policy rate.”
Analysts said they expect the central bank to continue to slash rates to 2.25 by June, some predicting a trade war with the United States could plunge Canada into a “shallow recession.”
Officials, however, warned that further reductions are not a given, noting that “monetary policy cannot offset the impacts of a trade war.”
They pointed out that a weaker economy usually pushes down costs, but tariffs would have the opposite effect, posing a dilemma for policymakers.
