Bank of Canada Reduces Policy Rate
Amid Escalating Trade Tensions
Interest rate cut aims to support the economy as new tariffs loom.
The Bank of Canada has reduced its benchmark interest rate by 25 basis points to 2.75%, marking the seventh consecutive rate cut in nine months. This decision responds to declining consumer spending and business investment, driven by trade-policy uncertainty and recent tariff announcements.
Economic Context
The Canadian economy ended 2024 robustly, with GDP growth and low unemployment. However, recent US tariff threats have dampened business and consumer confidence, impacting spending and investment plans. Inflation remains near the 2% target, but is anticipated to rise temporarily due to the end of a tax break and tariff concerns.
Bank’s Stance
The Bank of Canada emphasizes a cautious approach to future rate changes, balancing the risks of tariff-induced inflation with the need to support economic growth. Governor Tiff Macklem highlighted the unpredictable economic impact of U.S. tariffs and the resulting harm to consumer confidence and business investment.
Looking Ahead
The central bank will continue to monitor economic indicators closely, ready to adjust monetary policy as necessary to maintain price stability and support the economy amid ongoing trade tensions.
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