The BOC also said it would “cautiously proceed with further changes” to the given fees given to inflationary pressure from tariffs.
The Bank of Canada has reduced its key policy rate to 2.75% at 25 basis points, raising concerns about trade uncertainty and inflationary pressures and weaker growth due to President Donald Trump’s tariffs.
The bank on Wednesday also said it would “cautiously proceed with further changes” to the rate, taking into account the need to assess both upward pressures on inflation from higher costs and downward pressures from lower demand.
The bank’s stance, which some economists said, could be a signal that prices won’t fall any further, coming after months of inflation sat at that 2% target.
“We’re focusing on weighing these downward pressures versus upward pressures. Our job is to maintain price stability, and that’s what we’re focusing on,” Gov. Tif McClem said at a news conference.
However, he refused to give positive guidance in terms of where the fees go.
The cut marked seven consecutive times that made central banks ease monetary policy, reducing a total of 225 basis points in the nine-month space, making them one of the world’s most offensive central banks.
“We have finished 2024 with a solid economic foundation, but we are now facing a new crisis,” he said in a greeting at the press conference.
Trump’s Stop Starting Tariff Policy and Threat on Canada’s wide range of products have shocked businesses, shaken consumer confidence and hurt business investments.
Trump on Wednesday imposed a 25% tariff on all steel and aluminum products, while Canada said Thursday it would impose $29.8 billion ($20.688 billion) on retaliatory tariffs in the US.
The bank said the long-term tariff war would lead to GDP growth and lower prices.
The Rate Setting Governance Council focuses on assessing the timing and strength of both downward pressures on inflation from weaker economies and upward pressures from higher costs, McClem said.
The trade dispute will slow GDP in the first quarter and could disrupt the job market recovery, he said, adding that fear of the impact of tariffs on prices has already boosted expectations of short-term inflation.
Inflation is expected to be around 2.5% in March, as short-term sales tax breaks end from 1.9% in January.
The Canadian dollar extended its profits after the decision, trading 0.2% stronger to USD at 1.44.
The currency market bets that the potential for another rate cut of 25 basis points is nearly 45% in the bank’s next announcement on April 16th.
“It’s a bit of a Hawkish that focuses on the growing expectations of inflation in today’s release,” said Royce Mendes, head of macro strategy at Desjardins Group.
Slow down
The United States is Canada’s largest trading partner and accounts for almost 75% of all Canada’s exports.
Another special bank survey of businesses and households, conducted from late January to the end of February, showed that many households were concerned about employment safety, particularly in sectors exposed to US trade.
The threat of tariffs has forced businesses to lower their sales outlook.
Some companies find it difficult to gain credit, and the weaker currencies make imported goods more expensive, the research notes. This means that businesses are pulling back their employment and investment plans, he said.
Recent changes in consumer and business intent are expected to lead to a significant slowdown in domestic demand for the first quarter, McClem said in his remarks.
“Monetary policy cannot offset the impact of the trade war. What we can and must do is ensure that higher prices do not lead to ongoing inflation,” he said.