Bank of Canada cuts its key interest rate to 2.75% as tariffs roil economy

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Ottawa – Canada Bank has reduced the standard interest rate by a quarter of a point on Wednesday, as a tariff battle with the United States began to influence the Canadian economy.

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The policy price is 2.75 percent after the interest rate is reduced in the central bank.

The move was widely expected by economists.

The governor of Canada Bank Tif McLim said in statements prepared on Wednesday that the marks of stability in inflation and momentum in the Canadian economy, which is driven by previous price cuts, are at risk amid the trade war with the United States.

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He said: “The broad uncertainty resulting from the constantly changing tariff threats has shook business and consumer confidence.”

“Understanding alone really causes harm.”

Macklem has warned that economic damage may be “severe”, depending on the severity of the definitions and the time they are kept. He said that if the conflict continues, the growth in the second quarter of 2025 will make a blow.

Affiri Chenfield, chief economist at Cibc Capital Markets, said in a memorandum to customers on Wednesday that the evidence that the Canadian economy was heading to 2025 is likely to be sufficient for the Central Bank to take a “waiting and vision approach” to more discounts-but then the trade war came.

US President Donald Trump was delivered in weeks of tariff threats against Canada on March 4, although import duties have already turned with a series of modifications, delay and repercussions.

On Wednesday, the next stage of Trump's introductory agenda happens; 25 percent of the customs tariff entered the Canadian steel imports and aluminum that enters the United States in effect after midnight.

Canada has announced that it will respond with revenge definitions in the same morning.

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McLim said that the Canadians could expect to pay more in the coming months due to the trade conflict, as it first reached damaged foods such as fresh fruits and vegetables from the United States while durable goods may witness longer production courses at a later time.

The truth is that some prices will rise. “We cannot change this,” he told reporters at a press conference on Wednesday.

The latest interest rate of interest in Canada came as well as an additional survey of consumers and companies specifically interacting with the specter of customs tariffs from late January to February.

This data indicates that Canadians are planning less spending because they are worried about losing their jobs due to the trade conflict, especially in sectors such as manufacturing prone to tariffs.

About 40 percent of the Central Bank's business leaders said they are lying in employment plans.

Caroline Rogers, Deputy Governor of Bank of Canada, did not provide a direct response when asked whether the bank believes that the economy is heading to recession and pointed to specific chart predictions of the issuance along with the next average decision on April 16.

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But she said that “the feelings have turned sharply” between consumers and companies.

“What companies tell is, they slow down the investment, and they slow down. Canadians provide more, spend less. So all these things do not preach well growth.”

“The brief answer to this question is, it will depend a lot on what the United States is doing with its commercial policy. We will have to see.” Maclim added.

Canada Bank said that the low demand from Canadians who control their wallets is more comp that could weaken the pressure on inflation.

But approximately half of the poll companies also indicated that they will be ready to pass higher costs at speeds related to definitions on consumers, especially if they are transparent with consumers about the reason for the high prices.

The Bank of Canada indicated that inflation expectations rise between companies and consumers alike, a trend that can feed on inflation itself if left without deterrent.

Maclim said that the bank will use monetary policy to ensure that the price shocks of the definitions do not turn into a permanent seizure of inflation.

He said that the central bank cannot provide guidance forward amid uncertainty and will be “carefully moved” with changes in future prices because it weighs both clouds on economic growth and escalating pressures in prices related to the commercial war.

Shenfield said it expected the central bank to put more weight on the risk of growth than infection in the short term, leaving room for other interest rate discounts by June.

This report issued by the Canadian press was published for the first time on March 12, 2025.

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