Ottawa, Canada – The Bank of Canada has cut its benchmark interest rate by another 25 basis points, marking the seventh consecutive reduction, as the Canadian economy braces for potential disruptions from a looming trade war with the United States.
According to the central bank, Canada’s economy grew by 2.6% in Q4 2024, surpassing earlier expectations. Growth in the previous quarter was revised up to 2.2%, fueled by past rate cuts that boosted consumer spending and housing. However, growth is expected to slow down in early 2025 as the escalating trade conflict dampens business confidence and investment.
Consumer Confidence & Business Investment Hit
Recent surveys indicate a sharp decline in consumer confidence, with businesses holding back on investments due to uncertainty over US trade policies. Despite this, exports surged in advance of impending tariffs, offering temporary relief to the economy.
Labour Market Shows Mixed Signals
Employment growth remained strong from November to January, bringing the unemployment rate down to 6.6%. However, job growth stalled in February, signaling that trade tensions could disrupt the recovery in the labour market. Wage growth has also started to moderate, further reflecting the uncertainty in the economy.
Inflation Near Target, But Uncertainty Persists
Inflation remains close to the 2% target, with January’s CPI rising to 1.9%—slightly higher than expected. The temporary suspension of GST/HST helped lower some prices, but inflation is expected to rise to 2.5% in March as the tax break ends. The biggest driver of inflation remains rising shelter costs.
Bank of Canada’s Decision
Despite stronger-than-expected growth, the uncertainty surrounding US tariff threats is weighing on consumer spending and business expansion plans. With inflation remaining near the target range, the Governing Council decided to cut the policy rate by another 25 basis points to support the economy.
Economists warn that ongoing trade tensions and tariff uncertainties could lead to further monetary policy adjustments in the coming months.