Markets anticipate deeper rate cuts from the Bank of Canada as a prolonged trade dispute with the U.S. threatens a recession. Traders bet on a half-percentage point cut at the March meeting, driving the policy rate towards 2.25%. Analysts weigh the possibility of an emergency rate cut before March, while Governor Tiff Macklem emphasizes the limitations of monetary policy in addressing the trade war's impact. The Bank of Canada may update its outlook as details emerge, and fiscal measures might also be considered to mitigate the economic damage.
While announcing the Bank of Canada's rate decision, Governor Tiff Macklem said a major trade conflict would 'badly' hurt the Canadian economy.
Market pricing now implies that many traders are betting the bank will eventually drop its policy rate to around 2.25 per cent. That’s also a change from last week, when markets signaled the rate would go no lower than 2.5 per cent in this cycle. “An intermeeting cut would only be appropriate in response to significant financial market stresses, and would likely be accompanied by other measures needed to support markets,” Andrew Kelvin, head of Canadian and global rates strategy at Toronto-Dominion Bank’s securities division, said by email.
Prime Minister Justin Trudeau has said he supports the “principle” of counter-tariffs that are equal in dollar value to the US tariffs. Canada’s announced retaliation plan — covering $155 billion of U.S.-made goods — doesn’t go that far, potentially limiting the inflationary pressure of the trade dispute.
TRADE WAR BANK OF CANADA INTEREST RATES RECESSION CANADA UNITED STATES
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