Canada’s central bank announced a significant decision on Wednesday, cutting its key lending rate by 50 basis points to 3.25%. This move aims to support an economy facing challenges, including uncertainty sparked by U.S. President-elect Donald Trump’s proposed tariffs.
This marks the fifth rate cut by the Bank of Canada since June. The central bank had previously raised rates to combat inflation, which has since returned to the target range.
In its statement, the bank explained, “The Governing Council decided to lower the policy rate by 50 basis points to bolster growth and maintain inflation within the 1-3 percent target range.”
Recent economic data has shown slower-than-expected growth, with further deceleration predicted next year. Contributing factors include a planned reduction in immigration levels and the looming possibility of U.S. tariffs on Canadian exports.
Trump has suggested imposing a 25% tariff on imports from Canada and Mexico, citing concerns over drug trafficking and unauthorized migration. Canadian Prime Minister Justin Trudeau has expressed deep concern, calling the potential tariffs “devastating” for the Canadian economy, which relies heavily on trade with the United States.
Inflation, which dropped to 2% during the summer, is expected to remain subdued in the coming years, the bank noted.
A Cloudy Outlook
The Canadian economy grew by just 1% in the third quarter, weighed down by weaker business investment and exports. Consumer spending and housing activity offered some relief, but the outlook for the fourth quarter also appears dim.
Bank of Canada Governor Tiff Macklem acknowledged the potential impact of tariffs, stating they could be “highly disruptive” not only for Canada but also for the United States.
“At this stage, no one knows exactly how this situation will unfold—whether tariffs will be enforced, what exemptions might be agreed upon, or if retaliatory actions will follow,” Macklem said during a press conference in Ottawa.
Looking ahead, Macklem signaled a shift toward a more cautious approach to monetary policy. Analysts predict further rate cuts, possibly reaching 2% by mid-2025, with pauses along the way.
As the global economic landscape remains uncertain, Canada’s central bank continues to navigate a challenging path forward, balancing domestic priorities with international pressures.
