Bank of Canada Poised to Hold Rates as Tariff Risks Cloud Economic Outlook
The Bank of Canada is widely expected to keep the policy interest rate unchanged on Wednesday morning, despite high economic uncertainty as U.S. President Donald Trump threatens 100 per cent tariffs on Canadian goods.
Economists are predicting the central bank will stick to its message from October that it is not going to cut interest rates further if economic growth and inflation evolve as forecasted.
Many are expecting policymakers to remain on the sidelines for the rest of the year, maintaining the key rate at 2.25 per cent.
But some believe the bank is sounding “too certain for an uncertain economy,” wrote Royce Mendes, head of macro strategy at Desjardins, in a note to clients.
“The economy seems too fragile for the Bank of Canada to rule out anything at this point,” he said, adding that businesses are still anxiously awaiting the review of the Canada-United States-Mexico Agreement (CUSMA) this year.
“For their part, employees believe there is a greater likelihood of losing their job in this environment.”
The central bank’s decision will come days after Trump said he would impose 100 per cent levies on Canada if Prime Minister Mark Carney struck a trade deal with China.
Carney, however, brushed off the tariff threats, saying he expects the upcoming CUSMA negotiation to be “a robust review.”
Governor Tiff Macklem has previously emphasized that the central bank is “prepared to respond” if the economic outlook changes amid the CUSMA talks.
Since the last rate announcement in December, the data have pointed to a weak but resilient economy.
The unemployment rate rose to 6.8 per cent last month as more people searched for work. Meanwhile, the annual rate of inflation rose to 2.4 per cent in December from 2.2 per cent the month prior.
“The bank has repeatedly said that they are happy with the current policy stance, provided the economy evolves broadly in line with expectations,” wrote TD economist Rishi Sondhi in a note to clients last week.
“It would take a significant undershooting of economic growth or meaningful softening in the labour market to force policymakers off the sidelines.”
As of Tuesday morning, financial market odds for a rate hold in January were nearly at 92 per cent, according to data supplied by the London Stock Exchange Group.
Wednesday’s rate announcement is scheduled for 9:45 a.m. eastern time. It will be followed by a press conference by Macklem and senior deputy governor Carolyn Rogers at 10:30 a.m.
This article was first reported by The Star
