The Bank of Canada lowered its key interest rate by 25 basis points to 3% and downgraded growth forecasts, expressing concern that a US-triggered tariff war could inflict major economic damage on Canada. The Canadian dollar initially rose but quickly retraced. Traders anticipate further rate cuts this year, with a 44% chance of another 25 basis point reduction at the next meeting in March. However, the Bank's stance on future rate cuts remains uncertain amidst the looming threat of tariffs.
by 25 basis points to 3%, while also cutting growth forecasts and warning Canadians that a tariff war triggered by the United States could cause major economic damage.) got a little bit of a pop, rising immediately from 69.12 to 69.34 cents US. However, it quickly retraced some of that gain and continues to be well within its trading range of the past month.
Implied probabilities in overnight swaps markets suggest there’s a 44 per cent chance the central bank will cut rates by another 25 basis points at its next meting March 12. They are fully pricing in another quarter point cut by sometime this spring, however, and are pretty close to pricing in a full 50 basis points of further cuts by the end of this year.
Strikingly, in its policy statement, the Bank dropped the line from December that “we will be evaluating the need for further reductions in the policy rate one decision at a time” and it was not replaced with anything resembling forward guidance. That decision may reflect the fact that the policy rate is now within the Bank’s 2.25% to 3.25% neutral range estimate, or it may reflect uncertainty about how the Bank might need to respond if tariffs are imposed.
INTEREST RATES BANK OF CANADA TARIFFS ECONOMIC FORECAST CANADIAN DOLLAR
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