The Bank of Canada has chopped another quarter percentage point off its overnight rate, lowering it to 2.75 per cent.
"The Canadian economy entered 2025 in a solid position, with inflation close to the two per cent target and robust Gross Domestic Product growth," said the Bank. "However, heightened trade tensions and tariffs imposed by the United States will likely slow the pace of economic activity and increase inflationary pressures in Canada."
Canada's economy grew by 2.6 per cent in the fourth quarter of 2024, following 2.2 per cent growth in the third. Cuts to interest rates last year helped propel economic activity, particularly in housing and consumption. The Bank expects growth to slow in the first quarter of 2025 as the trade war intensifies.
"Recent surveys suggest a sharp drop in consumer confidence and a slowdown in business spending as companies postpone or cancel investments," added the Bank. "The negative impact of slowing domestic demand has been partially offset by a surge in exports in advance of tariffs being imposed."
Employment strengthened between November and January, but job growth stalled in February. The Bank believes there are warning signs the trade war will disrupt the job market.
The Bank of Canada's governing council said it will closely watch the impact of the trade war, but monetary policy cannot offset the impacts of trade tensions. It will closely monitor inflation.
Meanwhile, the American economy appears to be slowing, while inflation remains above target.
The next Bank of Canada announcement is April 16.