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The Bank of Canada has cut its benchmark interest rate by 0.25 percentage points to 2.75 per cent, the lowest since July 2022.
It is the seventh consecutive cut in the central bank’s monetary easing cycle as Canada’s inflation rate has been within policymakers’ target range of about 2 per cent. It is currently 1.9 per cent.
The move comes as the country is hit by market uncertainty and economic turmoil because of US President Donald Trump’s imposition of steel and aluminium tariffs, which took effect on Wednesday.
Trump has also imposed, then delayed, 25 per cent tariffs on Canada and Mexico, despite having a free-trade pact with the two countries.
“The economic outlook continues to be subject to more-than-usual uncertainty because of the rapidly evolving policy landscape,” the Bank of Canada said in a statement on its website.
But it warned that “monetary policy cannot offset the impacts of a trade war”.
“US trade policy complicates the Canadian outlook in the short term,” said Jack Manley, executive director and global market strategist at JPMorgan Asset Management.
“Tariffs might be inflationary in Canada, and could also damage growth, but over the long term it makes a compelling case for lower rates.”
On Sunday the minority government’s Liberal Party chose former Bank of England and Bank of Canada governor Mark Carney as their new leader and prime minister, replacing Justin Trudeau. Carney has pledged to “build the strongest economy in the G7”.
Carney is expected to call an election that is expected to be held in late April or early May. Canada must hold a national vote before October.
