The Bank of Canada on Wednesday reduced its key policy rate by 25 basis points to 2.75 per cent, citing concerns over inflationary pressures and weaker economic growth due to trade uncertainty and tariffs imposed by former U.S. President Donald Trump, Reuters reports.
According to Reuters, the central bank stated that it would “proceed carefully with any further changes” to interest rates as it evaluates the impact of higher costs on inflation and weaker demand on economic activity.
The rate cut marks the seventh consecutive reduction in nine months, bringing the total easing to 225 basis points, making the Bank of Canada one of the most aggressive central banks globally.
Reuters added that Governor Tiff Macklem said the country ended 2024 on a strong economic footing but now faces new challenges, including a trade conflict that could slow first-quarter GDP and disrupt job market recovery.
Trump imposed a 25 per cent tariff on all Canadian steel and aluminium products, prompting Canada to announce C$29.8bn ($20.68bn) in retaliatory tariffs effective Thursday. The central bank warned that a prolonged trade dispute could result in weak GDP growth and rising prices, complicating future monetary policy decisions.
The Canadian dollar strengthened by 0.20 per cent to 1.4403 to the U.S. dollar, while yields on two-year government bonds fell by 0.8 basis points to 2.521 per cent. Currency markets are pricing in a 45 per cent chance of another 25-basis-point rate cut at the central bank’s next announcement on April 16.
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