Manitoba Business Update: Bank of Canada Lowers Interest Rate Amid Escalating U.S. Tariff Threats

Jan 29, 2025

The Bank of Canada lowered its interest rate by 25 basis points on Wednesday, bringing the rate to 3 per cent – the lowest it’s been since September 2022 and marking the sixth consecutive reduction since June 2024. 

 The decision marks a slowdown from the central bank’s two previous larger cuts, having reduced its key rate by half a percentage point in October and again in December 2024 as inflation hovered at or below its two per cent target.  

While economists had been widely predicting this cut, they had also suggested it may be the last one for a while, amid uncertainty as to how potential U.S. tariffs on Canadian goods will affect our country’s economy. 

Bank of Canada Governor Tiff Macklem said while tariffs are a pressing economic concern, they were not factors in the rate cut. While the threat of tariffs remains a major source of uncertainty, the central bank suggests there are several possible scenarios which make it difficult to assess the economic impacts.   

“Unfortunately, tariffs mean economies simply work less efficiently – we produce and earn less than without tariffs,” Governor Macklem said. “Monetary policy cannot offset this. What we can do is help the economy adjust.”  

Even so, the Bank of Canada has planned for different potential tariff scenarios, including the likely implications of each on Canada’s economy. One model explores a broad-based 25 per cent tariff applied by both Canada and the United States, which the central bank asserts would put Canada into a recession.  

Despite the uncertainty created by the new American administration, the Bank of Canada forecasts that GDP growth will strengthen in 2025. However, population growth will slow because of reduced immigration targets, leading to lower GDP growth than was expected just a few months ago.   

The Bank of Canada’s next scheduled date for announcing the overnight rate target is March 12, 2025.   

Chambers Plan #1 – Leaderboard
Chambers Plan #1 - Leaderboard

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