Bank of Canada pauses rate cuts citing tariff uncertainty
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The news: The Bank of Canada has held its key policy rate at 2.75% amid US tariff uncertainty, its first pause after seven consecutive cuts, and said it was prepared to act “decisively” if incoming information “points clearly in one direction.”
Governor Tiff Macklem said the bank would be “less forward-looking than usual until the situation is clearer,” citing “uncertainty” around US tariffs.
The context: Trump’s trade actions—including 25% tariffs on Canadian-made automobiles, steel, aluminium and other goods considered noncompliant with the US-Mexico-Canada trade treaty —have unsettled markets, raised inflation expectations and dented business investment.
For the first time since the pandemic, the bank scrapped its economic forecasts in its quarterly report, offering two scenarios instead.
One assumes most tariffs are withdrawn, with inflation dipping to 1.5%. The other sees a long-lasting global trade war that triggers a year-long “significant recession” and drives inflation to 3.5% by mid-2026.
Governor Macklem said rate policy can’t resolve trade issues but must stressed it must ensure price stability.
The numbers: Consumer-price data for March, released Tuesday, showed inflation slowed to 2.3%, while the Bank of Canada’s preferred core inflation measure is at 2.85%. The bank expects second-quarter GDP to be much weaker, after forecasting 1.8% growth for Q1. It projected that business investment fell 2% annualised in the first quarter, and said real estate activity declined 7% in the final quarter of 2024
The Canadian dollar firmed 0.51% after the announcement.
What they said: “Everybody’s watching the daily announcements coming out of the White House, seeing the erratic, unpredictable course of US trade policy,” Macklem said.
“In this very clouded situation, we’re going to proceed carefully,” Macklem added.
The sources: Bank of Canada release, The Wall Street Journal , Bloomberg
