OTTAWA – The Bank of Canada is poised to announce another reduction of its key interest rate on Wednesday, March 12, 2025, amid increasing uncertainty due to the changing dynamics of the trade war with the United States. The prediction, widely echoed by economists, suggests the Bank will lower its rate by 25 basis points, bringing it down to 2.75%.
Carlos Capistran, economist at B of A Securities, noted, "The climate of uncertainty is impacting economic activity, necessitating this cut to bolster growth. We can expect limited positive guidance from the Bank amid rising inflation and subdued job creation." The Canadian economy has displayed solid growth of 1.5% for 2024, exceeding previous forecasts, but current trade-related risks threaten to undermine this progress.
On March 4, 2025, U.S. President Donald Trump implemented tariffs on certain Canadian imports, introducing new challenges for Canadian businesses. This regulatory action has triggered widespread caution among investors, as the practicalities of such tariffs remain fluid and unpredictable. According to Randall Bartlett, Chief Economist at Desjardins, “Uncertainty surrounding tariffs continues to loom, causing significant stress for the Bank of Canada, which must navigate both inflation controls and economic support.”
A snapshot of the Canadian job market shows weaknesses as the February 2025 employment report displayed nearly no net job creation, with the unemployment rate steady at 6.6%. This stagnant job growth reinforces the need for monetary easing, which some economists like Francis Gosselin predict will catalyze improvement.
Despite previous austerity measures, the Bank of Canada has been actively cutting its rate since June 2024 to combat looming economic downturns. Following ten consecutive rate hikes from March 2022 to July 2023, the economic forecast pointed out early signs of stabilization but has since been deterred by external pressures, compelling the Bank to reassess its strategy.
Gosselin observes, "the Bank will need to provide even more stimulus as uncertainties from the U.S. trade environment appear unresolved. We anticipate continued support through rate reductions if conditions persist." The upcoming announcement will lay bare the economic balancing act facing the Bank, which must weigh reducing rates to boost growth against the potential for rising inflation fueled by tariffs.
Market responses reflect these complex interactions within the economy. The Canadian dollar has demonstrated vulnerability, largely due to strong fluctuations linked to tariff sentiments. “The Canadian dollar may fall even more if the Bank opts for significant cuts, creating inflationary pressure on import costs,” Bartlett cautions.
Tiff Macklem, the Governor of the Bank of Canada, emphasized the delicate position the institution occupies. During public remarks on February 21, he stated, “If generalized tariffs persist, there will be no rebound.” This forewarning indicates the severity of prolonged trade tensions and its ramifications for Canada’s economic revival.
On the eve of this pivotal announcement, analysts predict mixed market reactions, caused by uncertainty influx as the dual threats of inflation and economic weakening emerge. The broader economic impact from the U.S. tariffs remains uncertain, but businesses wait with bated breath for the Bank’s decisions and its subsequent effects on consumer confidence and retail momentum.
With the local economy showing some signs of vitality, sustained consumption and increased retail activity were notable features of late 2024; subsequent downturn threats from the U.S tariffs could rapidly reverse gains, as Bartlett notes, “If tariffs stay high, we’re likely staring down the barrel of recession by summer.”
The announcement on March 12, 2025, is set for 9:45 AM Eastern Time, following embargoed briefings. Journalists attending the presentation will have the opportunity to engage directly with the Bank’s senior officials, including Macklem and Senior Deputy Governor Carolyn Rogers, at 10:30 AM, where they will discuss the intricacies of the monetary policy and its objectives moving forward.
Overall, the financial markets seem to anticipate the necessity for the central Bank to cut rates once more to navigate through these turbulent waters. A quarter-point cut might not resolve trade-related complications but may provide the necessary cushion for economic activity to flourish amid increasing tensions—the impact of which is expected to resonate deeply across sectors reliant on American commerce.