Bank of Canada governor also said potential tariffs by Trump posed a ‘major new uncertainty’.
The Bank of Canada has slashed its key policy rate by 50 basis points to 3.25 per cent. It indicated that further cuts would be more gradual, shifting from its previous message that continuous easing was needed to support growth.
On Wednesday, Bank of Canada Governor Tiff Macklem also said for the first time that the possibility that US President-elect Donald Trump’s new administration might impose tariffs on Canadian exports represented “a major new uncertainty.”
While widely expected, the 50-basis-point cut marks the first time since the pandemic that the central bank has implemented consecutive jumbo-sized cuts.
With the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” Macklem said in opening remarks to a news conference.
He said the bank would evaluate the need for further cuts one decision at a time, noting that monetary policy no longer needed to be clearly in restrictive territory.
The policy rate is now at the high end of the bank’s so-called neutral range, the band of interest rates considered adequate to eschew restraining growth but not stimulating it either.
Canada’s economy expanded at an annualized rate of just 1 per cent in the third quarter, less than the Bank of Canada had forecast. The bank said fourth-quarter growth might be weaker than expected, and planned reductions in immigration levels suggested 2025 growth might also fall short of forecasts.
Macklem also said the economic outlook was clouded by the 25 per cent tariffs on all Canadian exports to the United States promised by incoming US President Donald Trump unless Ottawa moves to tighten the border.
