By Promit Mukherjee
OTTAWA (Reuters) – The Bank of Canada will likely cut its benchmark rate by a quarter point on Wednesday to cushion the economy against U.S. tariffs, several economists said.
If the BoC delivers the 25-basis-point cut, it will be the bank’s seventh consecutive reduction, bringing down the policy rate to 2.75%, a massive 225-bps drop from nine months ago.
“The bank governor will err on the side of supporting the economy during what could be a downtrend from the tariffs,” said Tony Stillo, director at forecasting and analysis group Oxford Economics.
U.S. President Donald Trump’s abrupt shifts on the timing, products involved and extent of tariffs on imports from Canada have already created uncertainty among businesses and households, hurting investment and spending.
The potential impact of retaliation from Canada has heightened the unpredictability further.
BoC Governor Tiff Macklem is “in a bind,” Stillo said about Canada’s monetary policy path.
Cutting once in March and then holding rates to let the tariffs’ impact play out would be a pragmatic approach, he added.
Currency markets are seeing an almost 95% chance of a 25-bps cut on Wednesday, and 20 economists out of 23 polled by Reuters expect the quarter-point reduction.
The bank will announce the rates at 9:45 a.m. EDT (1345 GMT) on Wednesday.
The BoC said in January that tariff threats were clouding its forecasts. It said that if tariffs persist, it would shave off all the growth expected this year and next.
Canada’s economy had found its footing after several quarters of sluggishness. Fourth-quarter GDP surpassed forecasts to clock annualized growth of 2.6%, inflation continued to be below 2% and unemployment fell.
“A strong fourth quarter gives us a little bit of an insurance policy against these impending tariffs,” said Andrew DiCapua, principal economist at the Canadian Chamber of Commerce.
He cautioned, however, it would not offset a substantial blow from tariffs and the bank would have to bring the interest rate close to neutral soon.
A neutral rate is when the interest rate is just enough not to stimulate or restrict growth, a level the BoC considers roughly between 2.25% and 3.25%.
(Reporting by Promit Mukherjee; Editing by Rod Nickel)
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