With Canada locked in a trade showdown with the U.S., the Bank of Canada has sliced its overnight rate to 2.75%, hot on the heels of January’s drop to 3%. The move, announced Wednesday, aims to cushion the economy as President Donald Trump’s freshly minted 25% tariffs on Canadian steel and aluminum rattle markets.
The central bank painted a mixed picture: Canada kicked off 2025 with steady growth and inflation hovering near the 2% sweet spot. But the U.S. tariff bombshell threatens to slam the brakes on that momentum. “Trade tensions are brewing uncertainty, likely dragging down activity while pushing up prices,” the Bank warned in its statement. “The policy landscape’s shifting fast, and we’re in uncharted waters.”
Don’t expect monetary magic to erase the trade war’s sting, though. The Bank made it clear: “We can’t undo tariffs, but we can stop price hikes from spiraling into runaway inflation.” The Governing Council’s now on high alert, weighing a weaker economy’s deflationary drag against the inflationary kick from costlier imports.