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Bank of Canada Cuts Interest Rate to 2.75% in Response to U.S. Tariffs

The central bank's seventh consecutive rate cut aims to counter economic uncertainty and inflationary pressures from escalating trade tensions.

A view shows a Bank of Canada building in Ottawa, Ontario, Canada December 11, 2024. REUTERS/Blair Gable
Bank of Canada Governor Tiff Macklem takes part in a news conference, after cutting key interest rate, in Ottawa, Ontario, Canada October 23, 2024. REUTERS/Blair Gable/File Photo
Bank of Canada Governor Tiff Macklem takes part in a press conference, after cutting key interest rate, in Ottawa, Ontario, Canada March 12, 2025. REUTERS/Blair Gable
Bank of Canada Governor Tiff Macklem takes part in a press conference, after cutting key interest rate, in Ottawa, Ontario, Canada, January 29, 2025. REUTERS/Patrick Doyle/File Photo

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.