The Bank of Canada announced today it's second consecutive 25 basis point decrease, and 7th consecutive decrease overall as Canada find itself combating tariffs in the early stages of the trade war with the United States. Today's announcement from Canada's central bank brought it's policy rate to 2.75%.
In his prepared opening statement Tiff Macklem, the Governor of the Bank of Canada discussed what lead to today's decision. "The Canadian economy ended 2024 in good shape. Inflation has been close to the 2% target since last summer. Substantial cuts to our policy rate through the second half of last year boosted household spending and economic growth. However, in recent months, the pervasive uncertainty created by continuously changing US tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest. Against this backdrop, and with inflation near the 2% target, Governing Council decided to reduce the policy rate a further 25 basis points." (Bank of Canada, 2025)
When discussing the future, Macklem had this to say, "Looking ahead, the trade conflict with the United States can be expected to weigh on economic activity, while also increasing prices and inflation. Governing Council will proceed carefully with any further changes to our policy rate given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand." (Bank of Canada, 2025)
He finally address tariffs and the Bank of Canada's role in handling them, "Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation. The focus of Governing Council will be on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs." (Bank of Canada, 2025)
The Bank of Canada's next rate announcement is scheduled for April 16, 2025.
Graph Courtesy: Bank of Canada; https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
Quotes Courtesy: Bank of Canada; https://www.bankofcanada.ca/2025/01/opening-statement-2025-01-29/
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