The Bank of Canada lowered its policy rate to 3% for the sixth consecutive time, citing improving economic activity and stable inflation. However, the central bank's economic outlook is clouded by the threat of U.S. tariffs. The Bank of Canada revised its GDP forecast downwards, projecting a growth rate of 1.8% for both 2025 and 2026. It also outlined four scenarios outlining the potential impact of U.S. tariffs on the Canadian economy.
The Bank of Canada delivered another interest rate cut on Wednesday, reducing its policy rate by a quarter percentage point to three per cent. But looming U.S. tariffs are weighing on the central bank’s economic outlook.
The revised projection factors in lower population growth – and population decline in 2026 amid new federal immigration targets – and a downward revision to business investment from increasing policy uncertainty. “And even when we know more about what is going to happen, it will still be difficult to be precise about the economic impacts because we have little experience with tariffs of the magnitude being proposed.”
Such a scenario – what the central bank is calling its “benchmark calibration” – assumed Canadian exports react to price changes in line with historical norms and the cost of tariffs were fully passed on to consumer prices over three years.
INTEREST RATES TARIFFS ECONOMY GDP INFLATION
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