Overview

• The Bank of Canada reduced its benchmark interest rate by 25 basis points to 2.75%, marking its seventh consecutive rate cut in nine months.
• Governor Tiff Macklem cited heightened uncertainty from U.S. tariffs, which are expected to slow economic growth and push inflation higher, as a key factor in the decision.
• The Canadian economy ended 2024 with stronger-than-expected GDP growth of 2.6% in the fourth quarter, but consumer and business confidence have weakened due to trade tensions.
• The central bank emphasized caution on future rate decisions, balancing the risks of higher inflation from tariffs with weaker demand from reduced spending and investment.
• Analysts suggest the Bank of Canada may hold rates steady in the near term to assess the full impact of the trade conflict and avoid exacerbating economic volatility.