Potential tariff impacts highly implicated in latest decision
The Bank of Canada has cut its key interest rate by 25 basis points in for the seventh consecutive time, dropping its rate from three per cent to 2.75.
The cuts are largely seen as a precautionary measure against the long-term impacts of US President Donald Trump’s tariffs, while a freeze in Canada’s job market in February is also viewed as a key contributor to the decline.
“The Canadian economy entered 2025 in a solid position, with inflation close to the 2% target and robust GDP growth. 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,” read the announcement. “The economic outlook continues to be subject to more-than-usual uncertainty because of the rapidly evolving policy landscape.”
The Trump administration put in place 25 per cent tariffs on Canadian goods on March 4, though made exceptions for the auto industry and goods that meet USMCA standards. Steel and aluminum products were hit with 25 per cent tariffs this morning, with Trump threatening to double them amid reciprocal Canadian tariffs. The long-term impacts of a trade war could be devastating to the Canadian economy, while hinting at further rate cuts in the coming year.
February saw job growth grind to a halt, with only 1,100 new jobs added to the market according to StatCan’s latest employment report. The unemployment rate remained at 6.6 per cent, as immigration numbers slowed in February. Low business investment and stubborn inflation has also made for sluggish economic growth.
Millions of mortgages are set to renew in 2026, as a housing boom was prompted by extremely low interest rates in 2021. There are now fears that homeowners, who have seen the cost-of-living skyrocket since then, will not be able to keep up with mortgage payments at a higher rate.
“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 announcement read. “Governing Council will be carefully assessing the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.”
