Bank of Canada Cuts Key Interest Rate Amid Trade Tensions

The Bank of Canada has lowered its key policy interest rate by 25 basis points to 2.75%, citing heightened trade tensions with the United States as a significant factor impacting economic activity and inflation. Governor Tiff Macklem noted that while the Canadian economy ended 2024 in good shape with inflation near the target, ongoing uncertainty from U.S. tariffs is restraining consumer and business confidence. Experts predict that prolonged trade conflicts could lead to severe declines in exports and business investment, potentially stunting GDP growth. Despite a robust 2.6% GDP growth in the fourth quarter of 2024, the Bank anticipates challenges ahead as consumer sentiment and business spending are negatively affected by the trade environment. Economists from major Canadian banks had anticipated this cut, with trade risks weighing heavily on the decision-making process. The central bank emphasized a careful approach to future policy rate adjustments, balancing inflationary pressures against weaker demand.