The Bank of Canada recently held its interest rate at 2.75% and does not want to change it amidst US tariffs. While this may not seem significant, the bank of Canada has cut interest rates every year for the past seven years. The bank seems to be worried about potential inflation and other harms from US tariffs.
Bank of Canada Holds Interest Rates Amidst Uncertainty
Tiff Macklem, governor of the Bank of Canada, said that policymakers are just trying to digest the changes in trade policy. Macklem reports that businesses in Canada report higher prices from supplier due to tariffs. Senior bank officials allegedly debated the idea of a interest rate cut. However, the group decided not to because of a potential gloom future with US tariffs. The group also made predictions for what would happen amidst Trump’s economic policies. For Canada, the best case scenario would be slight economic growth with inflation just below 2%.
Macklem and his team believe that tariffs will reduce demand for Canadian goods due to increased prices. “We still do not know what tariffs will be imposed, whether they’ll be reduced or escalated, or how long all of this will last”, he said. Additionally, according to Macklem, rate policy “cannot resolve trade uncertainty or offset the impacts of a trade war.” Canadian experts agree with the decision made by the Bank of Canada. Carl Gomez, chief economist at CoStar Group Canada said “When you are driving your car and there’s a lot of fog ahead, most folks would probably step on the brake. Not surprisingly that’s exactly what the Bank of Canada did.”
Many Canadian economic experts, Macklem included, expect interest rates to come in June, once more information is available. It seems that the Bank of Canada will have to be agile when it comes to responding to US trade policy. Macklem said that Canada will be “less forward-looking than usual until the situation is clearer.” Canada will likely have to act quickly, according to Macklem. He said “we are prepared to act decisively if incoming information points clearly in one direction.”
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