Canada: Bank of Canada decreases rates in March
Latest bank decision: At its meeting on 12 March, the Bank of Canada reduced its target for the overnight rate to 2.75% from 3.00%, taking total rate cuts in the current cycle to 225 basis points.
Monetary policy drivers: The decision to ease monetary policy was driven by inflation which is close to the Bank’s 2.0% target, as well as expectations of an economic slowdown due to the trade conflict with the U.S.
Policy outlook: The Bank made clear that monetary policy would not be able to offset the economic impact of a trade war and must remain focused on tackling inflation; this hints that the Bank’s response to further tariffs may not be large interest rate cuts. Most panelists see more monetary easing this year, of between 25 and 100 basis points, though several panelists expect rates to remain unchanged through end-2025.
Panelist insight: On the outlook, TD Economics’ James Orlando said:
“Our updated forecast will reflect a shallow recession under the assumption that Canadian exporters will face an effective tariff rate of 12.5% for at least the next six months. That’s a massive overhaul from the past when it sat below 2%. As long as the pressure on tariffs remains in place, the BoC should keep its dovish bias. We have the overnight rate getting to 2.25% by June, but see limitations in going further due to the delicate balance in managing inflation expectations.”